Criminal Breach Of Trust
On August 21, 2014 By admin
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.
