Student Notes - IPC - Criminal Breach of Trust

Criminal Breach of Trust

a) Introduction:

The Indian Penal Code deals with the offence of Criminal Misappropriation of property under the category of "Criminal Breach of Trust". this offence is similar to the offence of ‘embezzlement’ under the English Law, the only difference is that the possession of the property is entrusted by the owner to the offender.

Section 405 of IPC defines Criminal Breach of Trust as, "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 willfully suffers any other person so to do, commits ‘criminal breach of trust."

In simpler words it can be said that, the beneficial interest in the property in respect to which the offence is alleged to have been committed was vested in some person other than the accused, and the accused held that property on behalf of that person. A relationship of transferor and transferee is created, where under the transferor remains the legal owner of the property and transferee only has the custody of the property for the benefit of the transferor himself or someone else. The transferee obtains only a special interest limited to a claim of his charges in respect of that property, and under no circumstances does he acquire a right to dispose of that property in contravention of the entrustment. The offence is committed when the transferee dishonestly misappropriates it, or converts it into something for his own use, or disposes it in violation of any direction of law, lawful contract, or willfully suffers any other person to do it.

The following ingredients are essential for attracting the offence under Section 405:

1. The accused must be "entrusted with property or dominion over that property."

2. He must with dishonesty- a) "Misappropriate that property", or b) "Convert it for own use", or c)" Use or Dispose off the property".

3. Such "dishonest use or misappropriation or conversion or disposition of the property must be in violation of the trust which he must legally discharge."

The two main things should be proved for the offence to attract under Section 405,

a) to show that the accused had the obligation to discharge trust which was acquired by entrustment over the property or dominion over that property.

a) That the dishonest use/ misappropriation/ disposition of that property is contrary or violative of that obligation.

One can be held liable for ‘criminal breach of trust’ only when above two things are proved.

b) Entrustment of Property:

The first and foremost essential to be fulfilled for this section is "entrustment". Until and unless the accused is entrusted with the property the section cannot come into play rather, it would mean criminal misappropriation. The phrase used in section is "in any manner entrusted with property" which means it includes all types of entrustment into its ambit, whether it be clerks, servants, business partners or any other person, provided they are holding a position of trust. It is wide enough to deal with all the cases, in which the property of the complainant or owner is voluntarily entrusted to the accused in any manner and is dishonestly misappropriated. the term "entrusted" found in the section governs not only the words "with the property" immediately following it but also the words "or with any dominion over the property". The entrustment may be expressed or implied.

In the case of State of Gujarat vs Jaswantlal Nathalal[1]the government sold cement to the accused only on the condition that it would be used for construction purpose. However, a portion of the purchased cement was transferred to a godown. The accused was sought to be prosecuted for criminal breach of trust. The Supreme Court in this case held that the expression ‘entrustment’ carries with its implication that the person handing over the property or on whose behalf the property is handed over, continues to remain the owner and he must have the confidence in person taking over the property. A mere transaction of sale does not amount to entrustment. If the accused had violated the conditions of purchase, he can be prosecuted under law relating to cement control only. No offence of criminal breach of trust was made out.

In the case of Jaswant Rai Manilal vs State of Bombay[2], it was held that when securities are pledged with a bank for specific purpose on specified conditions, it would amount to entrustment, same would go for the directors of the company, as to some extent they are in the position of trustee. However, if the money was paid as illegal gratification, there would be no question of entrustment.

In the case of State of UP vs Babu Ram[3], the accused was a Sub-Inspector of police, and had gone to investigate a theft case in a village. In the evening he saw Tika Ram, who was coming from the side of the canal and was going hurriedly towards a field. He appeared to be carrying something in hos dhoti folds. The accused searched him and found a bundle containing currency notes. The accused took the bundle and later returned it. The amount when returned was short of Rs. 250. the Supreme Court held that the currency notes were handed to the Police officer for a particular purpose and Tika Ram had trusted the accused to return the money once he was satisfied. If the accused had taken the notes, it would amount to Criminal Breach of Trust.

In the case of Rashmi Kumari vs Mahesh Kumar Bhada[4], the Supreme Court held that when the wife entrusts her stridhana property with the dominion over that property to her husband or any other member of the family, and any of them dishonestly misappropriates or converts it to his own use, or willfully suffers other person to do it, he/they commit criminal breach of trust.

In the case of Common Cause, A registered Society vs Union of India[5], the court held that the entrustment of property is meant to be a movable or immovable property. The power of a minister to allot the outlet due to discretionary power over dealing with a particular good is not covered by Section 405. It does not include entrustment of powers. And such dealing of entrustment cannot be a criminal breach of trust.

c) Property or Dominion Over The Property:

In the definition of Criminal Breach of Trust, the term property does not explicitly restrict itself to movable property. In the case of RK Dalmia vs Delhi Administration[6], the could held that the property in IPC mostly refers to movable property. But when the section itself does not restrict itself to the movable property then there is no limit to the kind of property being the subject of the offence. Hence, the interpretation of property as per the definition given in this section must be interpreted as per the facts of the each case.

The words "dominion over the property" connote control over the property arising through that entrustment. If a director of a company is in the position of a trustee and is handed over some assets of the company, then he can be said to have dominion over the property, i.e. control of assets. In a partnership firm although, the scenario is a bit different. Even though each partner is entrusted with the assets of the firm, it is not an entrustment which is meant under Section 405. Hence, the partners cannot be liable under this section unless and until there is a written agreement formed, making such entrustment over the partners.

The trust entrusted over the employer who deducts a part from the salary or wages of the employee for contribution in the PF and the pension fund is also covered under this Section. Such entrustment if misappropriated by the employer is liable for criminal breach of trust under the section. In the case of Employee State Insurance Corporation vs SK Aggarwal[7], the Court held that the term employer within the definition of ‘principal employer’ does not include director. Therefore, a managing director cannot be held liable for the misappropriation of such entrustment and cannot be held vicariously liable for criminal breach of trust under Sections 405 and 406.

d) Misappropriation of Entrusted Property:

Dishonest Misappropriation is the essence of this section. The term ‘dishonesty’ is defined under Section 24 of the IPC. "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." In order to convict a person under Section 405, one must prove the dishonest intentions of the accused. Also, the liability of criminal breach of trust would arise only when the property is said to have been "dishonestly misappropriated or converted to own use or disposed of". if a person has merely mismanaged the property or acted negligently then criminal liability won’t arise.

The fact of dishonest intention and dishonest utilisation by the accused has to be proved. As it is hard to prove the mental element by providing direct evidence, the Court in the case of Jaikrishnadas Manohardas Desai vs State of Bombay[8], held that the dishonest misappropriation need not be proved with direct evidence. The establishment of the fact that the accused was entrusted with the property or had dominion over the property and the accused is falsely claiming the failure to account for the same is enough. The court would thereafter infer the misappropriation and an act of criminal breach of trust by the accused. Further, the prosecution need not prove the manner in which property is dishonestly misappropriated.

In the case of Surendra Verma vs State of Bihar[9], the accused was in possession of the keys to a safe. It was held that the accused was liable because he alone had the keys and nobody could have had access to the safe, unless he could establish that he parted with the keys to the safe.

e) Temporary Misappropriation:

The offence under Section 405 can be said to have committed only when all of its essentials are satisfied. As in case of criminal misappropriation, even temporary misappropriation could be sufficient to warrant conviction under this section. Even if the accused intended to restore the property in future, at the time misappropriation, it is a criminal breach of trust.

In the case of R Venkatkrishnan vs CBI[10], the accused was a Bank Official and had made public money available to a private party. The Court held that the act of the Bank Official was against the statutory provisions and directives enforceable upon him. Thus, even though the money was recovered shortly and action was initiated by the department, the accused was made liable for criminal breach of trust.

When a person goes against the law or violates the law he should abide by , it is an act of criminal breach of trust, if such law is a statutory norm/ provision/ directive/ regulation issued by any authority enforceable against any accused.[11]

f) Punishment For Criminal Breach Of Trust:

Section 406 provides punishment for the offence of Criminal Breach of Trust. It follows as, "Whoever commits criminal breach of trust shall be punished with imprisonment of either description for a term which may extend to three years, or with fine, or with both"

g) Forms of Criminal Breach of Trust:

"407 Criminal breach of trust by carrier, etc—Whoever, being entrusted with property as a carrier, wharfinger or warehouse-keeper, commits criminal breach of trust in respect of suchproperty, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine"

"408 Criminal breach of trust by clerk or servant—Whoever, being a clerk or servant or employed as a clerk or servant, and being in any manner entrusted in such capacity with property, or with any dominion over property,commits criminal breach of trust in respect of that property, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine."

The criminal breach of trust is more severe offence than criminal misappropriation as the offender in the breach has a beneficial position of a trustee. Thus, if a breach of trust is committed by the person who is entrusted with the property and not by a stranger, it is an aggravated form of Criminal Breach of Trust.

"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 abanker, merchant, factor, broker, attorney or agent, commits criminal breach of trust in respect of that property, shall be punished with imprisonment for life, or with imprisonment of either description for a term which may extend to ten years, and shall also be liable to fine."

The offence under Section 409 is the most severe one as the accused is a public servant and is entrusted in the same capacity. In order to convict someone under Section 409, it must be proved that the accused is a public servant and was entrusted with property or dominion over the property and has thus committed criminal breach of trust under this Section.[12] The property entrusted to accused should be given in the capacity of a public servant and not in any personal capacity. The public servant, as explained in the Section, need not be a government employee necessarily.

• [1]AIR 1968 SC 700
• [2]AIR 1956 SC 576
• [3]AIR 1961 SC 751
• [4]1997 [2] SCC 397
• [5]AIR 1999 SC 2979
• [6]AIR 1962 SC 1821
• [7]AIR 1998 SC 2676
• [8]AIR 1960 SC 889
• [9]AIR 1973 SC 488
• [10]2009 11 SCC 737
• [11]Sidhir Shantilal Mehta vs CBI (2009) 8 SCC 1
• [12]Jiwan Das vs State of Haryana, AIR 1999 SC 1301