criminal breach of trust -2 illustrative cases
TRUST definition : -
Section 3 in The Indian Trusts Act, 1882
A “trust” is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner.
In Akharbhai Nazorali v. Md. Hussain Bhai(AIR 1961 M. P. 37:) the Madhya Pradesh High Court made the following observations:
"It may be that the deduction and retention of the employees' contribution is a trust created by virtue of that very fact, or by virtue of a provision in statute or statutory rule. But even apart from the latter, the mere fact of telling the employees that it is their contribution to the provident fund scheme and then making a deduction or recovery and retaining it, constitutes the offence of criminal breach of trust. This is so obvious that nothing more need be said about it."
These observations were fully endorsed and approved by Apex Court in Harihar Prasad Dubey v. Tulsi Das Mundhra & Ors.(AIR 1981 SC 92 - where the following observations were made:
"This, in our opinion, is a correct statement of the position and we also agree with the learned Judge of the Madhya Pradesh High Court that "this so obvious that nothing more need be said about it We, therefore, think that the impugned order quashing the charge against the respondents is obviously wrong." In Basudeb Patra v. Kanai Lal Haldar(3) the Calcutta High Court observed thus:
"Whereas the illustration to s. 405 show equally clearly that the property comes into.
In State of Gujarat v. Jaswantlal Nathalal it is observed:
"Before there can be any entrustment there must be a trust meaning thereby an obligation annexed to the owner ship of property and a confidence reposed in and accepted by the owner or declared and accepted by him for the benefit of another or of another and the owner. But that does not mean that such an entrustment need conform to all the technicalities of the law of trust - see Jaswantrai Manilal Akhaney v. State of Bombay [1956] SCR 483, 498-500. The expression 'entrustment' carries with it the implication that the person handing over any property or on whose behalf that property is handed over to anther, continues to be its owner. Further the person handing over the property must have confidence in the person taking the property so as to create a fiduciary relationship between them."
In Sushil Kumar Gupta v. Joy Shankar Bhattacharyya - it is observed:
"The offence of criminal breach of trust is committed when a person who is entrusted in any manner with property or with dominion over it, dishonestly misappropriates it, or converts it to his own use, or dishonestly uses it or disposes it of, in violation of any direction of law prescribing the mode in which the trust is to be discharged, or of any lawful contract, express or implied, made by him touching such discharge, or wilfully suffers any other person so to do."
In Superintendent Remembrancer of Legal Affairs, West Bengal v. S.K. Roy, it is observed:
"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 Jaswantrai Manilal Akhaney v. State of Bombay, (A. I. R. 1956 S. C. , 575) may be seen. In that case two financial institutions a co-operative Bank and an Exchange bank were involved in a transaction. The Co-operative Bank had entrusted the Exchange Bank with some securities to keep them as securities for overdrafts that may be taken by the Cooperative Bank. Alleging Criminal breach of trust of the said securities the Exchange Bank was prosecuted. As to who was liable to be proceeded against in such a situation was considered by the Supreme Court in Jas- Wantrai's case at Sub-para (3) of para-13 which reads thus: "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. "
In Superintendent and Remembrancer of Legal Affairs, W.B. v. S.K. Roy, [(1974) 4 SCC 230], this Court held:
"12. To constitute an offence under Section 409 IPC, it is not required that misappropriation must necessarily take place after the creation of a legally correct entrustment or dominion over property.
The entrustment may arise in any manner whatsoever. That manner may or may not involve fraudulent conduct of the accused. Section 409 IPC, 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 over 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, atleast honestly."
Superintendent & Rememberancer ... vs S. K. Roy 1974 AIR 794
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.
Supreme Court of India
R. K. Dalmia vs Delhi Administration on 5 April, 1962
In Palmer's Company Law, 20th Edition, is stated at page 517 "Directors are not only agents but they are in some sense and to some extent trustees or in the position of trustees."
Directors are called trustees. They are no doubt trustees of assets which have come into their hands, or which are under their control. They are trustees of the company's money and property-agents in the transactions which they enter into on behalf of the company.
What s. 409 I.P.C. requires is that the person alleged to have committed criminal breach of trust with respect to any property be entrusted with that property or with dominion over that property in the way of his business as an agent. The expression in the way of his business' means that the property is entrusted to him in the ordinary course of his duty or habitual occupation or profession or trade'. He should get the entrustment or dominion in his capacity as agent. In other words, the requirements of this section would be satisfied if the person be an agent of another and that other person entrusts him with property or with any dominion over that property in the course of his duties as an agent. A person may be an agent of another for some purpose and if he is entrusted with property not in connection with that purpose but for another purpose, that entrustment will not be entrustment for the purposes of S. 409 I.P.C. if any breach of trust is committed by that person.the criminal breach of trust by the agent a graver offence than any of the offences mentioned is ss. 406 to 408 I.P.C. The criminal breach of trust by an agent would be a graver offence only when he is entrusted with property not only in his capacity as an agent but also in connection with his duties as an agent.
Supreme Court of India
Anil Saran vs The State Of Bihar And Another on 24 August, 1995
Until the firm is dissolved as per law and the accounts settled, all the partners have dominion in common over the property and funds of the firm. Only after the settlement of accounts and allotment of respective share, the partner becomes owner of his share. However, criminal breach of trust under s.406 is not in respect of the property belonging to the partnership firm, but is an offence committed by a person in respect of the property which has been specially entrusted to such a person under a special contract and he holds that property in fiduciary capacity under special contract. If he misappropriates the same, it is an offence.
Supreme Court of India
Vishwa Nath vs State Of Jammu & Kashmir on 5 January, 1983
the accused had put to personal use the Government money entrusted to him, instead of depositing the same in the proper place. The fact that the accused refunded the amount when the act of his defalcation came to be discovered, does not absolve him of the offence committed by him. The accused happened be a public servant of the Police Department and was posted as Naib-Courty. He was entrusted with the amount seized and with criminal intention he had not made any entry of the money in Rahdari Rejster, while he made its entry in the Malkhana Register No. 1, so that his misappropriation of the amount might not be detected by anybody. He committed criminal breach of trust with respect to this money over which he had complete dominion by putting the same to his use between 7th February, 1972 to 8th August, 1972. The refund of the amount after detection does not absolve him of the offence.
Delhi High Court
J.R.D. Tata vs Payal Kumar And Anr. on 5 March, 1986
Evidently a breach of contract of pledge by the pledger or pawnee will in the normal course give rise to a civil liability alone but as shall be presently seen, there may be circumstances where the alleged breach is so grave and want on that it may warrant an interfere of dishonest or fraudulent intention on the part of the pledgee in disposing of the pledged goods. In other words, every offence of criminal breach of trust involves a civil wrong in respect of which the complainant may seek redress in a civil court but every breach of trust in the absence of requisite means read is not criminal. As observed by the Supreme Court in Jaswantrai Manilal Akhaney v. The State of Bombay. : "THE same set of facts may give rise both to a civil liability and a criminal prosecution. But if there is no means rea, or if the other essential ingredients of an offence are lacking, the same facts may not sustain a criminal prosecution, though a civil action may lie".Thus, the fundamental core of the offence of criminal breach of trust is that a property must be entrusted and the dominion of the property hould be given to the trustee which carries with it the implication that the perion handing over any property continues to be its owner. Further, the person handing over the property must have confidence in the person taking the property so as to create a fiduciary relationship between them.
(Remember in In Jaswantrai Manilal Akhaney (Supra) the facts were that under the contract entered into by the pledger Bank with the pledgee Bank, the securities owned by the pledger were to be kept by the pledgee Bank charged with the payment of an amount up to a certain limit as may from time to time have been advanced or be advanced to the pledger Bank under the overdraft arrangement. However, the pledgee Bank bad no right to deal with the securities by way of pledge, sub-pledge or assignment until certain contingencies contemplated in the contract bad arisen. The Supreme Court held that the. contract did create a trust in favor of the pledger Bank in respect of pledged securities. Apex Court observed that : "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 congency 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 favor 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." Their Lordships further observed that : "WHEREsecurities have been delivered with a view to cover the repayment of any overdraft by the pledger Bank to the pledgee Bank and it is agreed that they are to be disposed of on the arising of a stipulated contingency only, then by the very fact of the delivery of the securities to the bailee the latter becomes a trustee in terms of the contract, not for all purposes, but only for the limited purpose indicated by the agreement between the parties." )
EXAMPLES OF BREACH OF TRUST :-
Post master keeps money with himself and makes no official entry in record. He is guilty of criminal breach of trust.
A pawnee who dishonestly disposes off the thing pledged in a manner not justified by the terms of the pledge is guilty of criminal breach of trust.
Where a printer entrusted with certain blocks by the complainant to print his catalogue and printer uses the blocks to print catalogue of rival firm , he is guilty of criminal breach of trust.
Inspector of water works whose duty is to supervise and check distribution of water from municipal water corporation , is said to have dominion over property and if he uses such water for his own benefit or for benefit for his tenants without paying taxes and gives no information to his employer , he is guilty of criminal breach of trust.
A traffic assistant in Indian Airlines corporation , demanded on behalf of the corporation certain excess amounts for trunk charges from passengers for reservation of seats. After amounts are received ,he passed receipts on behalf of the corporation . He , however , subsequently falsified the counter foil receipts , and fraudulently misappropriated the excess amounts . He was held liable for criminal breach of trust.
Supreme Court of India
R. Venkatakrishnan vs Central Bureau Of Investigation on 7 August, 2009
Criminal breach of trust by a Public servant is dealt with under s. 409.
"409. Criminal breach of trust by public servant, or by banker, merchant or agent.- Whoever, being in any manner entrusted with property or with any dominion over property in his capacity of a public servant or in the way of his business as a banker, merchant, factor, broker, attorney or agent, commits criminal breach of trust in respect of that property shall be punished with imprisonment of life, or with imprisonment of either description for a term which may extend to ten years, and shall also be liable to fine."
This section classes together public servants, bankers, merchants, factors, brokers, attorneys and agents. The duties of such persons are of a highly confidential character, involving great powers of control, over the property entrusted to them and a breach of trust by such persons may often induce serious public and private calamity. High morality is expected of these persons. They are to discharge their duties honestly.
The following are the essential ingredients of the offence under this section :
1) The accused must be a public servant;
2) He must have been entrusted , in such capacity with the property ;
3) He must have committed breach of trust in respect of such property. I
To constitute an offence of criminal breach of trust, there must be an entrustment, there must be misappropriation or conversion to one's own use, or use in violation of legal direction or of any legal contract: and the misappropriation or conversion or disposal must be with a dishonest intention. When a person allows others to misappropriate the money entrusted to him that amounts to a criminal appropriation of trust as defined by Section 405. The section relatable to property in a positive part and a negative part. The positive part deals with criminal misappropriation or conversion of the property and the negative part consists of dishonestly using or disposing of the property in violation of any direction and of law or any contract touching the discharge of trust."
In Raghunath Anant Govilkar Vs. State of Maharashtra and Ors, [2008 (2) SCALE 303] the court noted that Section 406 which provides the punishment for criminal breach of trust simplicitor and 409 of IPC are cognate offences in which the common component is criminal breach of trust. When an offence punishable under under Section 406 is committed by a public servant (or holding any one other of the positions listed in the Section) the offence would escalate to Section 409 of the Penal Code.
Supreme Court of India
Som Narth Puri vs The State Of Rajasthan on 15 February, 1972
Section 405 merely provides, whoever being in any manner entrusted with property or with any dominion over the property, as the first ingredient of the criminal breach of trust. The words 'in any manner' in the context are significant. The section does not provide that the entrustment of property should be by someone or the amount recieved must be the property of the person on whose behalf it is received. As long as the accused is given possession of property for a specific purpose or to, deal with it in a particular manner, the ownership being in some person other than the accused, he can be said to be entrusted with that property to be applied in accordance with the terms of entrustment and for the benefit of the owner. The expression 'entrusted' in section 409 is used in a wide sense and includes 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. It may be that a person to whom the property is handed over may be an agent of the person to whom it is entrusted or to whom it may belong in which case if the agent who comes into possession of it on behalf of his principal, fraudulently misappropriates the property, he is nonetheless guilty of criminal breach of trust because as an agent he is entrusted with it. A person authorized to collect moneys on behalf of another is entrusted with the money when the amounts are paid to him, and though the person paying may no longer have any proprietary interest nonetheless the person on whose behalf it was collected becomes the owner as soon as the amount is handed over to the person so authorized to collect .
Supreme Court of India
V.S. Achuthanandan vs R. Balakrishna Pillai & Ors on 10 February, 2011
(Accused 1 was the Minister for Electricity, Government of Kerala)
The analysis of the materials placed by the prosecution, the plea of defence by the accused, the decision of the Special Court and the reasoning of the High Court, Apex court was satisfied that the prosecution has established the following aspects insofar as the accused (Accused1), (Accused 3) and (Accused 6) are concerned:-
a) By awarding both the works of Idamalayar at a very high and exorbitant rate with special conditions having heavy financial implications.
b) By reducing the retention and security amount.
c) By allowing the contractor to return only fifty per cent of the empty cement bags.
Having arrived at such conclusion, it was of the view that the High Court failed to appreciate in its proper sense the materials placed by the prosecution and brushed aside several important items of evidence adduced by the prosecution. The accused persons have abused their official positions and are right fully convicted.
Supreme Court of India
Jaikrishnadas Manohardasdesai ... vs The State Of Bombay on 16 March, 1960
The first appellant was the Managing Director and the second appellant a Director and technical expert of a cloth dyeing concern known as Parikh Dyeing and Printing Mills Ltd. The
company entered into a contract with the Textile Commissioner undertaking to dye a large quantity of cloth which was supplied to the company for that purpose. In
pursuance of the contract certain quantity of cloth was dyed and delivered to the Textile Commissioner by the company but it failed to dye and deliver the balance of cloth which
remained in its possession and was not returned to the Textile Commissioner in spite of repeated demands. Ultimately the two appellants were prosecuted for criminal
breach of trust under S. 409 read with S. 34 of the Indian Penal Code and were convicted for the same in a trial by jury.
APEX COURT HELD - "Direct evidence to establish misappropriation of the cloth over which the appellants had dominion is undoubtedly lacking, but to establish a charge of criminal breach of trust, the prosecution is not obliged to prove the precise mode of conversion, misappropriation or misapplication by the accused of the property entrusted to him or over which he has dominion. The principal ingredient of the offence being dishonest misappropriation or conversion which may not ordinarily be a matter of direct proof, entrustment of property and failure in breach of an obligation to account for the property entrusted, if proved, may in the light of other circumstances, justifiably lead to an inference of dishonest misappropriation or conversion. Conviction of a person for the offence of criminal breach of trust may not, in all cases, be founded merely on his failure to account for the property entrusted to him, or over which he has dominion, even when a duty to account is imposed upon him, but where he is unable to account or renders an explanation for his failure to account which is untrue, an inference of misappropriation with dishonest intent may readily be made.
The two appellants were liable to account for the cloth over which they had dominion and. they failed to account for the same and therefore each had committed the offence of criminal breach of trust.In such a case, if accused Nos. 1 and 2 (Appellants 1 & 2) alone were concerned with the receipt of the goods, if they were dealing with the goods all the time, if they were receiving communications from the Textile Commissioner's office and sending replies, to them, and if the part played by each of them is apparent from the manner in which they are shown to have dealt with this contract, then it is a case of two persons entrusted with the goods and a breach of trust obviously being committed by both of them'.
Supreme Court of India
Chelloor Mankkal Narayan ... vs State Of Travancore-Cochin on 10 November, 1952
Bench: M. Patanjali Cji, B. K. Mukherjea, S. R. Das, V. Bose, G. Hassan
The appellant and accused No. 2 Ramachandra Iyer were appointed joint receivers of a textile business, known as Sitaram Spinning and Weaving Mills Limited . Appellant was to enter fresh agreements with other person which in their opinion would best serve the interest of the mills. The appellant agreed to sell P.W. 1 , 100 bales of goods produced by the mills on condition of receiving a premium of 23,100 Rs over and above the sale price . The amount was neither remitted to credit of company nor brought to company's accounts.
Court held - "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 the case before us, it is not disputed that if the sum of Rs. 23,100 was paid by P. W. 1 to the appellant by way of illegal gratification to induce the latter to make an allotment of cloth in his favour, there could be no question of entrustment in such payment. The payee would then receive the money on his own behalf and not on behalf of or in trust for anybody else. The criminality of an act of this character would consist in illegal receipt of the money and the question of subsequent misappropriation or conversion of the same would not arise at all.
On the other hand, if the money was paid by P. W. 1 as an extra price for the bales of cloth which he was allowed to purchase and the accused received it on behalf of or as agent of the mills, the money would, strictly speaking, be the property of the mills, and if the accused in violation of his legal duties appropriated such money to himself without bringing it into the mills' accounts, there is no doubt that he would be guilty of criminal breach of trust. The question for determination is, whether the money was given by P. W. 1 to the accused for and on behalf of the mills or was it given to him personally as a motive and reward for showing him some favour? In both these letters P. W. 1 says that the appellant promised to give him 100 bales of Sitaram piece goods in return for which he was to pay the accused a secret profit of Rs. 10,000. This indicates that the money was intended to be paid to the accused as his own personal profit and it was not an item of additional or extra price for the goods purchased, which was demanded by or paid to the accused on behalf of the mills
The subject of criminal breach of trust, as stated in the charge, was a sum of Rs. 23,100 and the definite allegation against the accused was that he and his co-receiver functioning as public servants neither remitted this amount to the credit of the company, nor brought it to the company's accounts, but dishonestly misappropriated the same with the intention of causing illegal loss to the company and illegal gain to themselves. No doubt the charge, which we have set out in the beginning, refers to the two accused having custody of the company's goods, but the charge nowhere indicates that the offence consisted in wrongful use or disposal of these goods in violation or any direction of law, and it was not stated also what these directions of law were.
In our opinion, it would not be proper to make an order for retrial in this case. In the first place, the charge of accepting illegal gratification upon which alone any retrial could be ordered, was definitely abandoned by the prosecution at the time of the trial. In the second place, the accused has fully served out the sentence of imprisonment during the period that the appeal was pending in this court and a further trial would not be proper in the interests of justice. We, therefore, allow the appeal and set aside the order of the High Court and direct that the accused be acquitted. The fine if paid, should be refunded to him."
Allahabad High Court
Gurmez Singh vs State Of Uttar Pradesh And Anr. on 3 February, 1989
Facts - In the instant case a First Information Report was lodged on 20-11-87 at Police Station Sungarhi by the complainant Daljit Singh (Opp. Party 2 in the instant petition), who was one of the partners of National Financing Company in which, it was clearly alleged that the truck was surrendered to the complainant by Gurmez Singh on 24-5-87 out of his own free-will owing to his inability to pay regular instalments in accordance with terms agreed between the Company and the accused. The truck had been surrendered to the complainant - in a most rickety and bad condition. Thereafter, the truck was given for repairs to Balbir repairs to Balbir Singh, a partner of the aforesaid National Financing Company. After the truck had been completely repaired and rennovated and while it was stationed at the painter's shop at bye-pass road, applicant Gurmez Singh arrived there at about 3-30 p.m. on 20-11-87 and on the pretext of taking a trial of the vehicle and by taking key from Balbir Singh, another partner of the National financing Company, he sped away the vehicle and when he did not return for quite sometime a search was made and ultimately a report was lodged the same day at Police Station Sungarhi by Daljeet Singh whereupon a case under Sections 406/420, I.P.C. was registered against the applicant. The Police during investigation found the truck abandoned on the road side near Bareilly road ahead of Jahanabad tri-junction, which the police seized and on concluding the investigation, the police submitted charge-sheet against the applicant Gurmez Singh under Sections 406/420, I.P.C.
Contention raised - Criminal case is to be quashed as its a case of civil liablity .
High court held - "The case against the applicant under Sections 406/420, I.P.C. is liable to be adjudicated upon by Criminal Court inasmuch as the facts of the present case stand on a quite different footing than the facts disclosed in the case ,the application under Section 482, Cr. P.C. preferred by Gurmez Singh, applicant, is rejected as devoid of merit. The Judicial Magistrate concerned is directed to decide the case within three months from today in accordance with law without being prejudiced by the observations made in the body of the judgment."