Criminal Breach Of Trust

By Samarth Trigunayat, CNLU

Editor’s Note: Criminal breach of trust is defined under Section 405 of the Indian Penal Code, 1860. The section, in a nutshell, reads as ‘dishonest misappropriation’ or ‘conversion to own use’ another person’s property. Criminal breach of trust and criminal misappropriation (under Section 403) is distinguished from each other in terms of the fact that in criminal breach of trust, the accused is entrusted with property or with dominion or control over the property.

The language of this section has been structured in a manner that it has a wide ambit, however ‘entrustment’ of the property is an essential element for an offense to be penalized under S.405 of IPC.

The essential ingredients of the offense of criminal breach of trust are;

(1)   The accused must be entrusted with the property or with dominion over it,

(2)   The person so entrusted must use that property, or;

(3)   The accused must dishonestly use or dispose of that property or wilfully suffer any other person to do so in violation,

(a) of any direction of law prescribing the mode in which such trust is to be discharged, or;

(b) of any legal contract made touching the discharge of such trust.

S.409 of the Indian Penal Code defines such breach of trust by public servants or banker, merchants or agents. In such case-situations, the concerned parties share a fiduciary relationship particularly. Public servants are entrusted more than ordinary people and thus have positions of greater responsibility. Thus any such breach of trust attracts more stringent punishment- to the extent of life imprisonment, unlike punishment which is met out to common offenders.

The author has cited various judgments on cases pertaining to criminal breach of trust. Finally, in conclusion, the author is of the opinion that the existing provisions penalizing such offenses are sufficient and needs no amendment. However, the need of the hour is to ensure adequate enforceability.

An Introduction to Criminal Breach of Trust

The provision for Criminal Breach of Trust is mentioned in Chapter XVII under Section 405 of Indian Penal Code. Section 405, of Indian Penal Code, states:

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.’[i]

What does Criminal Breach of Trust mean?

The offense of criminal breach of trust, as defined under section 405 of IPC, is similar to the offense of ‘embezzlement’ under the English law. A reading of the section suggests that the gist of the offense of criminal breach of trust is ‘dishonest misappropriation’ or ‘conversion to own use’ another’s property, which is nothing but the offense of criminal misappropriation defined u/s 403.

The only difference between the two is that in respect of criminal breach of trust, the accused is entrusted with property or with dominion or control over the property. As the title to the offense itself suggests, entrustment or property is an essential requirement before any offense under this section takes place. The language of the section is very wide. The words used are ‘in any manner entrusted with property’. So, it extends to entrustments of all kinds-whether to clerks, servants, business partners or other persons, provided they are holding a position of trust. “The term “entrusted” found in Section 405, IPC governs not only the words “with the property” immediately following it but also the words “or with any dominion over the property.”[ii]

Later an explanation was added to it by an amendment in the year 1973 and was later renumbered as explanation 1 in the year 1975. In the same year, another explanation was added to it.  The explanations for this section are:

Explanation 1[iii]:  A person, being an employer [of an establishment whether exempted under section 17 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), or not] who deducts the employee’s contribution from the wages payable to the employee for credit to a Provident Fund or Family Pension Fund established by any law for the time being in force, shall be deemed to have been entrusted with the amount of the contribution so deducted by him and if he makes default in the payment of such contribution to the said Fund in violation of the said law, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid.

Explanation 2[iv]: A person, being an employer, who deducts the employees’ contribution from the wages payable to the employee for credit to the Employees’ State Insurance Fund held and administered by the Employees’ State Insurance Corporation established under. the Employees’ State Insurance Act, 1948 (34 of 1948), shall be deemed to have been entrusted with the amount of the contribution so deducted by him and if he makes default in the payment of such contribution to the said Fund in violation of the said Act, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid.

Essentials for Criminal Breach of Trust

The essential ingredients of Criminal breach of trust are:

  • The accused must be entrusted with property or dominion over it.
  • He must have dishonestly misappropriated the property or converted it to his own use or disposed of it in violation of such trust[v].

There are two distinct parts involved in the commission of the offense 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 misappropriation or dealing with the property dishonestly and contrary to the terms of the obligation created[vi]. The principal ingredients of Criminal Breach of Trust are thus ‘entrustment’ and ‘dishonest misappropriation’.

Entrustment:

As the title to the offense itself suggests, entrustment of a property is an essential requirement before any offense in this section takes place. The language of this section is very wide. The words used are, ‘in any manner entrusted with property’. So it extends to entrustments of all kinds whether to clerks, servants, business partners or other persons, provided they are holding a position of ‘trust’.

The word entrust is not a term of art. In common parlance, it embraces all cases in which a thing handed over by one person to another for a specific purpose. The term ‘entrusted’ is wide enough to include in its ambit all cases in which property is voluntarily handed over for a specific purpose and is dishonestly disposed of contrary to terms on which possession has been handed over.[vii] Entrustment need not be expressed, it can be implied.[viii]

The definition in the section does not restrict the property to movables or immoveable alone. In R K Dalmia vs Delhi Administration[ix], the Supreme Court held that the word ‘property’ is used in the Code in a much wider sense than the expression ‘moveable property’. There is no good reason to restrict the meaning of the word ‘property’ to moveable property only when it is used without any qualification in Section 405.

Whether the offense defined in a particular section of IPC can be committed in respect of any particular kind of property, will depend not on the interpretation of the word ‘property’ but on the fact whether that particular kind of property can be subject to the acts covered by that section[x].

The word ‘dominion’ connotes control over the property. In Shivnatrayan vs State of Maharashtra[xi], it was held that a director of a company was in the position of a trustee and being a trustee of the assets, which has come into his hand, he had dominion and control over the same.

However, in respect of partnership firms, it has been held[xii] that though every partner has dominion over property by virtue of being a partner, it is not a dominion which satisfies the requirement of s 405, as there is no ‘entrustment of dominion, unless there is a special agreement between partners making such entrustment.

Explanations (1) and (2) to the section provide that an employer of an establishment who deducts employee’s contribution from the wages payable to the employee to the credit of a provident fund or family pension fund or employees state insurance fund, shall be deemed to be entrusted with the amount of the contribution deducted and default in payment will amount of the contribution deducted and default in payment will amount to dishonest use of the amount and hence, will constitute an offense of criminal breach of trust.

In Employees State Insurance Corporation vs S K Aggarwal[xiii], the Supreme Court held that the definition of principal employer under the Employees State Insurance Act means the owner or occupier. Under the circumstances, in respect of a company, it is the company itself which owns the factory and the directors of the company will not come under the definition of ’employer.’ Consequently, the order of the High Court quashing the criminal proceedings initiated u/ss 405 and 406, IPC was upheld by the Supreme Court.

Misappropriation:

Dishonest misappropriation is the essence of this section. Dishonesty is as defined in Sec.24, IPC, causing wrongful gain or wrongful loss to a person. The meaning of wrongful gain and wrongful loss is defined in Sec. 23, IPC. In order to constitute an offense, it is not enough to establish that the money has not been accounted for or mismanaged. It has to be established that the accused has dishonestly put the property to his own use or to some unauthorized use. Dishonest intention to misappropriate is a crucial fact to be proved to bring home the charge of criminal breach of trust.

Proof of intention, which is always a question of the guilty mind of the person, is difficult to establish by way of direct evidence. In Krishan Kumar V Union of India[xiv], the accused was employed as an assistant storekeeper in the Central Tractor Organization (CTO) at Delhi. Amongst other duties, his duty was the taking of delivery of consignment of goods received by rail for CTO. The accused had taken delivery of a particular wagonload of iron and steel from Tata Iron and Steel Co, Tatanagar, and the goods were removed from the railway depot but did not reach the CTO. When questioned, the accused gave a false explanation that the goods had been cleared, but later stated that he had removed the goods to another railway siding, but the goods were not there.

The defense version of the accused was rejected as false. However, the prosecution was unable to establish how exactly the goods were misappropriated and what was the exact use they were put to. In this context, the Supreme Court held that it was not necessary in every case to prove in what precise manner the accused person had dealt with or appropriated the goods of his master. The question is one of intention and not direct proof of misappropriation.

The offence will be proved if the prosecution establishes that the servant received the goods and that he was under a duty to account to his master and had not done so. In this case, it was held that the prosecution has established that the accused received the goods and removed it from the railway depot. That was sufficient to sustain a conviction under this section.

Similarly, in Jaikrishnadas Manohardas Desai vs State of Bombay[xv], it was held that dishonest misappropriation or conversion may not ordinarily be a matter of direct proof, but when it is established that property, is entrusted to a person or he had dominion over it and he has rendered a false explanation for his failure to account for it, then an inference of misappropriation with dishonest intent may readily be made.

In Surendra Prasad Verma vs State of Bihar[xvi], 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 access to the safe, unless he could establish that he parted with the keys to the safe. As seen in the case of criminal misappropriation, even a temporary misappropriation could be sufficient to warrant conviction under this section.

Criminal Breach of Trust by a Public Servant, Banker, Merchant or Agent

As already seen in the previous sections, the acts of misappropriation or breach of trust done by strangers is treated less harshly than acts of misappropriation or breach of trust who enjoy special trust and are also in a position to be privy to a lot of information or authority or on account of the status enjoyed by them, say as in case of a public servant. That is why Sections 407 & 408 provide for enhanced punishment of punishment up to seven years in case of commission of offence of criminal breach of trust by persons entrusted with property as a carrier or warehouse-keeper.

In respect of public servants a more stringent punishment of life imprisonment or imprisonment up to ten years with fine provided. This is because of the special status and the trust which a public servant enjoys in the eyes of public as a representative of the government or government-owned enterprises.

The persons having fiduciary relationship between themselves have a greater responsibility for honesty as they have more control over the property entrusted to them, due to their social relationship. A mere carelessness to observe the rules of treasury ipso facto cannot make one guilty of criminal breach of trust. There must be something more than carelessness, i.e., there should be dishonest intention to keep the government out of moneys[xvii]. Where under the rules, a public servant is required to lodge in the treasury any government by the registers in his hands and the public servant removes the excess from the office cash book, he is guilty of misappropriation[xviii].

Moneys paid to Post Master for money order are public money; as soon as they are paid they cease to be the property of the remitters and misappropriation of such moneys will fall under this section[xix]. It is not necessary under the section that the property in respect of which the offense is committed must be shown to the property of the State.

Under section 409 of IPC, the entrustment of property or dominion should be in the capacity of accused as a public servant or in the way of his business as a banker, broker or merchant etc. The entrustment should have the nexus to the office held by the public servant as a public servant. Only then this section will apply.

In Superintendent and Remembrancer of Legal Affairs v SK Roy[xx], the accused, a public servant in his capacity in Pakistan unit of Hindustan Co-operative Insurance Society in Calcutta which was a unit of LIC, although not authorized to do so directly realized premiums in cash of some Pakistani policyholders and misappropriated the amounts after making false entries in the relevant registers.

To constitute an offense of Criminal Breach of trust by a public servant punishable under Section 409 IPC, the acquisition of dominion or control over the property must also be in the capacity of a public servant. The question before the court was whether the taking of money directly from policyholders, which was admittedly unauthorized, would amount to acting in his capacity as a public servant.

The Supreme Court held that it is the ostensible or apparent scope of a public servant’s authority when receiving the property that has to be taken into consideration. The public may not be aware of the technical limitations of the powers of the public servants, under some technical limitations of the powers of the public servants, under some internal rules of the department or office concerned. It is the use made by the public servant of his actual official capacity, which determines whether there is sufficient nexus or connection between the acts complained of and the official capacity so as to bring the act within the scope of the section. So in case, it was held that the accused was guilty of an offense under s 409.

An employee of the Indian Airlines, who took excess money from the passengers and pocketed the same by falsifying reports, was held guilty under s 409 and the Prevention of Corruption Act, 1947[xxi].

In order to sustain the conviction under Section 409, it is required to prove:

  1. Entrustment of a property of which accused is duty bound to account for;
  2. Commission of Criminal Breach of Trust[xxii].

The prosecution dealing with cases of criminal breach of trust by a public servant is required to prove not only that the accused was a public servant but also was in a capacity entrusted with property or with domination over the same and he committed breach of trust in respect of that property[xxiii].

It is not necessary that the property entrusted to a public servant should be of government. But what is important is that the property should have been entrusted to a person in his capacity as a public servant[xxiv].

Views of Judges & Courts in Various Cases

In State of Gujarat vs Jaswantlal Nathalal[xxv], the government sold cement to the accused only on the condition that it will be used for construction work. However, a portion of the cement purchased was diverted to a godown. The accused was sought to be prosecuted for criminal breach of trust. The Supreme Court held that 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 another, 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. A mere transaction of sale cannot amount to an entrustment. If the accused had violated the conditions of purchase, the only remedy is to prosecute him under law relating to cement control. But no offence of criminal breach of trust was made out.

In Jaswant Rai Manilal Akhaney vs State of Bombay[xxvi], it was held that when securities are pledged with a bank for specific purpose on specified conditions, it would amount to entrustment. Similarly, properties entrusted to directors of a company would amount to entrustment, because directors are to some extent in a position of trustee. However, when money was paid as illegal gratification, there was no question of entrustment.

In State of UP vs Babu Ram[xxvii], the accused, a sub-inspector (SI) of police, had gone to investigate a theft case in a village. In the evening, he saw one person named Tika Ram coming from the side of the canal and hurriedly going towards a field. He appeared to be carrying something in his dhoti folds. The accused searched him and found a bundle containing currency notes. The accused took the bundle and later returned it.

The amount returned was short by Rs. 250. The Supreme Court held that the currency notes were handed over to the SI for a particular purpose and Tika Ram had trusted the accused to return the money once the accused satisfied himself about it. If the accused had taken the currency notes, it would amount to a criminal breach of trust.

In Rashmi Kumar vs Mahesh Kumar Bhada[xxviii], 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 the husband or such other member of the family dishonestly misappropriates or converts to his own use that property, or willfully suffers any other person to do so, he commits criminal breach of trust.

Even failure to handover marriage gifts and ornaments received from in laws to the wife on being driven out amounts to criminal breach of trust[xxix]. Taking away such gifts and cash offerings from her by in laws also amounts to misappropriation.

Analysis & Conclusion

Various suggestions were provided by various law commissions in order to amend the laws related to criminal breach of trust. The most important one being submitted by the Fifth Law Commission:

  1. Section 408 (criminal breach of trust by clerk or servant) should be brought in tune with its proposed s 381 of the IPC so that breach of trust by any employee in respect of his employer’s property can be brought within purview of Section 408.
  2. The maximum punishment (of life imprisonment) provided for criminal breach of trust by public servant etc, should be scaled down to rigorous imprisonment for a term up to fourteen years.

Hence it’s clear that for an offence to fall under this section all the four requirements are essential to be fulfilled. The person handing over the property must have confidence in the person taking the property, so as to create a fiduciary relationship between them or to put him in position of trustee. The accused must be in such a position where he could exercise his control over the property i.e., dominion over the property.

The term property includes both movable as well as immovable property within its ambit. It has to be established that the accused has dishonestly put the property to his own use or to some unauthorized use. Dishonest intention to misappropriate is a crucial fact to be proved to bring home the charge of criminal breach of trust.

It is submitted that the offence of criminal breach of trust is very much common in today’s world. It happens during the daily routine of a common man’s life. From offices to the marriage ceremonies, everywhere its presence can be traced. Not only in the truest sense but also there are many cases of white collar crimes, where the person without any intention involves in such crimes.

The best way to get rid of such crime is by educating people about the stringent laws regarding this offense. In case of same by a public servant, the laws are more stringent and thus they deter the public servant to commit such crimes.

In this way this section is satisfactory in itself. The provisions laid down in the Indian Penal Code are enough to cope up with the problem of Criminal Breach of Trust. The only thing required is the effective implementation as well as application of law as many of the cases go unreported and through regular investigations they wouldn’t go unnoticed.

Formatted on March 15th, 2019.

REFERENCES:

[i] Section 405, Indian Penal Code, 1872.

[ii] http://www.legalserviceindia.com/articles/crbt.htm, accessed on 5th October, 2013.

[iii] Ins.by Act 40 of 1973, sec 9 (w.e.f 1/11/1973).

[iv] Ins by Act 33 of 1988, sec 27 (w.e.f. 1/8/1988).

[v] See JRD Tata v Payal Kumar (1987) CrLJ 447 (Del).

[vi] Superintendent and Remembrance of Legal Affairs Vs SK Roy (1974) 4 SCC 230.

[vii] Somnath Puri v State of Rajasthan (1972) 1 SCC 63.

[viii] State of Madhya Pradesh v Pramode Mategaonkar (1965) 2 CrLJ 562 (MP).

[ix] AIR 1962 SC 1821.

[x] Shivnarayan Joshi v State of Maharashtra AIR 1980 SC 439.

[xi] AIR 1980 SC 439.

[xii] Velji Raghavji Patel v State of Maharashtra AIR 1965 SC 1433.

[xiii] AIR 1998 SC 2676.

[xiv] AIR 1959 SC 1390.

[xv] AIR 1960 SC 889.

[xvi] AIR 1973 SC 488.

[xvii] Lal Raoji, (1928) 30 Bom. L.R. 624.

[xviii] Daya Shanker, (1926) I Luck. 345.

[xix] Juala Prasad, (1884) 7 All. 174 (F.B.)

[xx] AIR 1974 SC 794, (1974) CrLJ 678 (SC).

[xxi] Somnath Puri v State of Rajasthan AIR 1972 SC 1490.

[xxii] Kailash Kumar Sanwatia v State of Bihar (2003) 7 SCC 399.

[xxiii] Jiwan Das vs State of Haryana AIR 1999 SC 1301.

[xxiv] Sardar Singh v State of Haryana (1977) 1 SCC 463.

[xxv] State of Gujarat v Jaswantlal Nathanlal AIR 1968 SC 700.

[xxvi] AIR 1956 SC 575.

[xxvii] AIR 1961 SC 751.

[xxviii] (1997) 2 SCC 397.

[xxix] Madhusudan Malhotra v Kishore Chandra Bhandari (1988) SCC (Cr) 854.

One Reply to “Criminal Breach Of Trust”

  1. Sir your explanation of S.409 “of the Indian Penal Code defines such breach of trust by public servants or banker, merchants or agents. In such case-situations, the concerned parties share a fiduciary relationship particularly.”

    Does this section apply to the below case, under the condition of sharing “fiduciary relationship”

    A as a proprietor represents his firm to be of a capacity to give loan. A in the name of his firm does an agreement to give XXX amount to B if the conditions fulfilled(mainly document related). A issued official sanction & disbursement letter to B, during this process in the name of legal documentation and stamping and other charges money is taken from B.

    Later A closes the activities of the firm and disappears.

    Is he also chargeable u/s 409 other an 420 418 415 120B

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