Criminal Breach of Trust

Author: Divya Sharma

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Introduction:

Under Indian Penal Code, 1860, Sections 405-409 of Chapter XVII, deal with “Criminal Breach of Trust”. Section 405 defines Criminal breach of trust and it reads as follows:

“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 JaswantraiManilalAkhaneyv. State of Bombay,[1]it was opined that the beneficial interest in the property must be vested on some other person rather than the accused and the accused had the custody of the property for the benefit of that person. So, accused must not be the owner of the property but must be entrusted with some property or with the dominion over the property.

Essential Ingredients:

In Sadhupati Nageswara Rao v. State of Andhra Pradesh,[2]Supreme Court has laid down two basic requirements to prove conjointly to bring home the offence under section 405:

1. There must be an entrustment of property; (In Ramaswami Nadar Stateof Madras,[3]Supreme Court held that if there is no entrustment then there can be no offence under section 405.)
2. The accused must be actuated by dishonest intention, misappropriated or converted the property to his own use to the detriment of the persons who entrusted it.[4]

If one breaks the section, then the following ingredients are necessary to attract the operation of section 405:

• For criminal breach of property, the accused must be entrusted with some property or dominion over the property; and
• The person so entrusted (i.e., the accused) must-
  1. dishonestly misappropriate, or convert to his own use, that property, or;
  2. dishonestly use or dispose of that property or wilfully suffer any other person to do so in violation of:
  3. any direction of law, prescribing the mode, in which such trustis to be discharged, or

II.any legal contract made touching the discharge of such trust.

Thus, the principal ingredients will be ‘entrustment’ and ‘dishonest misappropriation of the property’.

Entrustment:

Entrustment can be understood as confiding of the care or disposal of something to someone. It implies voluntarily handing over of custody or management of the property to someone for some purpose. Law says that offender must receive the property and holds on behalf of the other, so that he can be acted as a trustee of the property. In one ruling of Supreme Court, it was held that the term entrusted found in section 405 of Indian Penal Code, 1860 governs not only the words with the property immediately following it but also the words or with dominion over the property. Now this term dominion refers to having a charge over the propertyor control over the property. In order to show entrustment of dominion under this section it is not enough that the person has dominion over the property in fact prosecution has to prove that the dominion was the result of entrustment by special agreement between parties.[5]

Dishonest Misappropriation/ Conversion to One’s Own Use:

Misappropriation occurs when a person wrongfully sets apart or assigns to some other person or use to which it should not be set apart or lawfully assigned, property of another, to the exclusion of the owner.[6]In case of dishonest misappropriation, actus reus will consist of either of the four positive acts:

• Misappropriation
• Conversion
• User
• Disposal of property

If due to occurrence of any unfortunate or any intervening situation, the person to whom the property has been entrusted is disabled from carrying out the purpose of entrustment, then in such case it will not attract the application of this section unless misappropriation, conversion to own use or disposal of property is established.

Even a temporary misappropriation is sufficient for conviction under criminal breach of trust but it must be with a dishonest intention.

Punishment for the Offence of Criminal Breach of Trust:

Section 406 deals with the punishment for criminal breach of trust and it reads as follows:

“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.”

So, a person liable for the offence of criminal breach of trust shall be imprisoned maximum for a period of three years or fine or both. The offence is cognizable[7], non- bailable, triable by Magistrate of the First Class and can be compounded with the with the owner of the property.

Punishment?	Imprisonment which may extend to 3 years/ fine/ both.
Cognizable/ Non- Cognizable?	Cognizable offence.
Bailable/ Non- Bailable?	Non- Bailable offence.
Compoundable/ Non- Compoundable?	Can be compounded with the owner of the property in respect of which criminal breach of trust has been committed.
Triable by?	Magistrate of the First Class.

Aggravated Forms of Criminal Breach of Trust:

Section 407- 409 covers the aggravated forms of criminal breach of trust.

Section 407 deals with “criminal breach of trust by carrier, etc.” and it reads as follows:

“Whoever, being entrusted with property as a carrier, wharfinger or warehouse-keeper, commits criminal breach of trust in respect of such 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.”

This section includes categories of persons who received property or goods under some contract and they supposed to either carry the goods or safe them in a safe custody. This section talks about three categories i.e., carrier, a wharfinger and a warehouse keeper.

Carrier is basically a person who undertakes to transport the goods for hire. Wharfinger is the owner or one can say an officer in charge of the wharf who takes care of goods for shipment or delivery. Warehouse keeper is the keeper of a warehouse which is a licensed place for storage of goods.

So, as per section 407, if any carrier, wharfinger or a warehouse keeper who is entrusted with the property dishonestly misappropriates the property or converts the property on his own use then in such case he shall be liable for criminal breach of trust and shall be punished with imprisonment which can be extended to seven years and shall also be liable to fine.

Section 408 deals with “criminal breach of trust by clerk or servant” and it reads as follows:

“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.”

Clerk or servant is entrusted with master’s property to either sell or dispose it off in a particular way. It may also apply to cases where clerk or servant is appointed to collect money from someone and give the same to his master. Under English Law, this principal is known as “embezzlement”, defined under Theft Act of 1968.

Section 409 deals with “criminal breach of trust by public servant, or by banker, merchant or agent” and it reads as follows:

“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 for 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 includes within its fold and punishes public servants[8], banker[9], merchant, trustee, broker, attorney, agents[10] etc. in case of criminal breach of trust.[11]

Criminal Breach of Trust and Criminal Misappropriation: A Difference

As per section 405, criminal breach of trust is basically dishonest misappropriation or dishonest conversion to own use, which is somewhat same as criminal misappropriation of property defined under section 403. So, the question arises that how these two offences can be differentiated? By examining both the sections of the Code, it can be said that the difference lies in respect of the way of acquisition of property, relationship between the parties and the mode of its conversion.

Criminal Misappropriation	Criminal Breach of Trust
There is no contractual relationship of the offender with the actual owner of the property.	There is a contractual relationship of the offender with the actual owner of the property.
It applies on conversion of property where offender gets the possession of the property by any casualty, chance or anyhow.	It applies to conversion of property holds by a person in a fiduciary capacity.
Property must be moveable.	Property can be either moveable or immoveable.
In case of criminal misappropriation, offender gets the possession anyhow and he subsequently misappropriates it.[12]	In this case offender holds it subject to some duty or obligation and he dishonestly misappropriates it and does not discharge the trust attached to it.

 

Pertinent Judicial Interpretations:

1. Sardar Singh State of Haryana[13]

Case is related to section 408, where criminal breach of trust took place by a servant. As per the facts of the case, accused, a servant of a liquor contract, was entrusted with liquor to sell by his master. According to the contract he was not supposed to adulterate the liquor with water. But he violated the contract and mixed certain amount of water in liquor and sold the increased quantity and appropriated the profits made to his own use. He acted dishonestly as he was not legally entitled for such money. Therefore, Supreme Court held the servant guilty of criminal breach of trust under Indian Penal Code, 1860.

2. Indian Oil Corpn. NEPC India Ltd.[14]

In this case, the question arises whether there is any entrustment in case of any hypothecation? In hypothecation there will be no transfer of title or possession. Both ownership and possession remain with the debtor only. It is a mode of creating a security where the creditor will have an equitable charge over the property and is given a right to take possession and sell the hypothecated movables to recover his dues. But in such case, there is no entrustment of property or entrustment of dominion over the property because possession remains with the owner and the creditor has neither ownership nor any beneficial interest. So, it was held that there is no case of any criminal breach of trust.

3. Madhu Sudan Malhotra Kishore Chand Bhandari.[15]

Supreme Court held that cases where marriage gifts and ornaments of the bride were not returned to her on her being driven out of her in- laws house attract the offence of criminal breach of trust.

4. M. Narayan Ittiravi Nambudiri v. state of Travancore- Cochin.[16]

In this case, it was held that in order to attract the offence of criminal breach of trust, first of all it is compulsory for the prosecution to prove that the accused was entrusted with the property or dominion over the property. Further it must be proved that he has dishonestly misappropriate or convert the property for his own use in violation of a direction of law or legal contract. Also, it was observed that the ownership and the beneficial interest with respect to the property must be with the person other than the accused.

Conclusion:

So, with this, the researcher would like to conclude that criminal breach of trust and criminal misappropriation cannot be considered as same offence. Further, it must be established that in order to attract the offence of criminal breach of trust, entrustment of the property or entrustment over the dominion of the property must be there and dishonest misappropriation, dishonest use or conversion must take place with respect to the property entrusted. Also, ownership should be remained with the person other than the accused. Accused and the owner or we can say debtor should have a fiduciary relation with each other.

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[1] AIR 1956 SC 575.

[2] AIR 2012 SC 3242.

[3] AIR 1958 SC 56.

[4]Ibid.

[5]VeljiRaghavji Patel v. State of Maharashtra, AIR 1965 SC 1433.

[6]R. v. Krishnan, AIR 1940 Mad 329.

[7] Section 2(c) of The Code of Criminal Procedure, 1973: “Cognizable offence” means an offence for which, and “cognizable case” means a case in which, a police officer may, in accordance with the First Schedule or under any other law for the time being in force, arrest without warrant.

[8]Vishwa Nath v. State of J &K, (1983) I SCC 215.

[9]Budh Singh v. State of Haryana, (1974) 3 SCC 638.

[10]Somanath Choudhary v. Union of India, 1981 CriLj I 458.

[11]Chandi Prasad Singh v. State of U.P., AIR 1956 SC 149.

[12]Y. Venkatesha Bhat v. State of Mysore, ILR 1967 Mys 78.

[13] (1977) I SCC 463.

[14] (2006) 6 SCC 736.

[15] 1988 SCC (Cri) 854.

[16] AIR 1953 SC 478.

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About the Author: Divya is a fifth-year student at National Law University and Judicial Academy, Assam.

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