Criminal Breach of Trust: Introduction, Essentials, Explanation

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Criminal Breach of Trust

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Criminal Breach of Trust: Introduction, Essentials, Explanation | Overview

The article introduces what is a criminal breach of trust. Further mentions essentials of the offence of criminal breach of trust and elaborates upon explanations of each essential. The article briefly explains about temporary misappropriation of an entrusted property with respect to this offence. The punishment for this offence is mentioned in the article along with the relevant section. The sections dealing with other forms of criminal breach of trust are mentioned under the head of aggravated forms. Brief description regarding these forms is discussed.

Introduction

The penal code deals with the offence of criminal misappropriation of property under the category of “Of Criminal Breach of Trust”[1] under the head “Of Offences Against Property” under the Indian Penal Code.[2]

The definition of criminal breach of trust has been provided in section 405 of the penal code.[3] This offence is similar to the offence of “embezzlement” under the English law.[4] The offence of embezzlement seems to be similar to that offence of criminal misappropriation in India under section 403 but the only difference is that the possession of the property is entrusted by the owner to the offender.[5]

“405 Criminal breach of trust—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 wilfully suffers any other person so to do, commits criminal breach of trust

Explanation 1—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—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

Illustrations

  1. A, being executor to the will of a deceased person, dishonestly disobeys the law which directs him to divide the effects according to the will, and appropriates them to his own use; A has committed criminal breach of trust
  2. A is a warehouse-keeper; Z going on a journey, entrusts his furniture to A, under a contract that it shall be returned on payment of a stipulated sum for warehouse room; A dishonestly sells the goods; A has committed criminal breach of trust
  3. A, residing in Calcutta, is an agent for Z, residing at Delhi; There is an express or implied contract between A and Z, that all sums remitted by Z to A shall be invested by A, according to Z’s direction; Z remits a lakh of rupees to A, with directions to A to invest the same in Company’s paper; A dishonestly disobeys the directions and employs the money in his own business; A has committed criminal breach of trust
  4. But if A, in the last illustration, not dishonestly but in good faith, believing that it will be more for Z’s advantage to hold shares in the Bank of Bengal, disobeys Z’s directions, and buys shares in the Bank of Bengal, for Z, instead of buying Company’s paper, here, thought Z should suffer loss and should be entitled to bring a civil action against A, on account of that loss, yet A, not having acted dishonestly, has not committed criminal breach of trust
  5. A, a revenue-officer, is entrusted with public money and is either directed by law or bound by a contract, express or implied, with the Government, to pay into a certain treasury all the public money which he holds; A dishonestly appropriates the money; A has committed criminal breach of trust
  6. A, a carrier, is entrusted by Z with property to be carried by land or by water; A dishonestly misappropriates the property; A has committed criminal breach of trust”

Essentials

The following are the essentials of the “offence of criminal breach of trust”-

  1. The accused must be “entrusted with property or dominion over that property”.
  2. He must with dishonesty- a. “Misappropriate that property” or; b. “Converts it to own use” or; c. “Uses or Disposes of the property”
  3. Such “dishonest use or misappropriation or conversation or disposition of the property must be in violation of the trust which he must legally discharge”.

Hence, the two main things to prove for the prosecution is first, to show that the accused had the obligation to discharge trust which was acquired by entrustment over the property or dominion over that property. Secondly, that the dishonest use or misappropriation or disposition of that property is contrary or violative of that obligation.[6] Thus, one can be held liable for “criminal breach of trust” if the above two things are proved.[7]

Entrustment Of Property

The first and foremost essential to be fulfilled for this section is “entrustment”. Unless and until the accused is entrusted with the property the section would not come into play rather would mean criminal misappropriation. The phrase used in the section is “in any manner entrusted with property” which means it includes all kinds of entrustment into its ambit. It is wide enough to deal with all the cases, in which the property of the owner or complainant is voluntarily entrusted to the accused in any manner and is dishonestly misappropriated. Further, the entrustment may be either express or implied.[8]

In the case of State of Uttar Pradesh v. Babu Ram, AIR 1961 SC 751, the accused is the sub-inspector of police, who was incharge of a case of theft in a particular locality. At night when the accused noticed that a man was running into the fields, he suspected that he had something hidden. When the accused searched the victim he found a bundle of currency notes which the accused took over for confirmation purposes and told that he would return only when it is proved that the money is not related to the theft case. The accused later on returned the amount after confirmation and it was short of Rs. 250. The court held that when the money was given to the accused it was given for a particular purpose, hence he was entrusted with that property of the victim. If the accused misappropriates, it is a breach of that entrustment. Hence the accused was held guilty for criminal breach of trust.[9]

In the case of Common Cause, A Registered Society v. Union of India, AIR 1999 SC 2979, 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 powers over dealing with a particular good is not covered by section 405. It does not include the entrustment of powers. And such dealing of entrustment cannot be a criminal breach of trust.[10]

Property Or Dominion Over The Property

The term property being used in the definition of criminal breach of trust did not explicitly restrict to the movable property itself. In the case of RK Dalmia v. Delhi Administration, AIR 1962 SC 1821, the court held that the property term in the IPC mostly refers to the 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 in this offence. Hence, the interpretation of property as per the definition of the offence given in the section must be interpreted with respect to the facts of each case.[11]

The “dominion over the property” is interpreted to be the 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 is said to have dominion over the property i.e., control over the assets.[12] But the situation is different when it comes to a partnership firm. In a partnership firm, although each partner is entrusted with the assets of the firm, it is not an entrustment which is meant by section 405. Hence the partners cannot be made liable under this section unless and until there is a written agreement making such entrustment over the partners.[13]

The trust entrusted over the employer who deducts a part from the salary or wages of the employee for contribution crediting in the provident fund and the pension fund is also covered by this section. Such entrustment if misappropriated by the employer is liable for criminal breach of trust under explanation 1 and 2 of this section.[14] In the case of Employees State Insurance Corporation v. SK Aggarwal, AIR 1998 SC 2676, the court held that the term employer within the definition of “principal employer”[15] in the act of “Employees State Insurance Act, 1948”[16] does not include director.[17] Therefore, a managing director cannot be held responsible for the misappropriation of such entrustment and cannot be held vicariously liable for criminal breach of trust under section 405 and 406.[18]

Misappropriation Of Entrusted Property

In order to convict a person under this section, one must prove the dishonest intention of the accused. Also, the liability for criminal breach of trust would only arise when the property is said to have been “dishonestly misappropriated or converted to own use or disposed of”. The term “dishonesty” is defined under section 24 of the penal code. It says that- “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”.[19]

If a person is merely mismanaged the property or acted negligently then the criminal liability would not arise. The fact of dishonest intention and dishonest utilisation by the accused must be proved.  As it is hard to prove the mental element by providing direct evidence with the court of law held in the case of Jaikrishnadas Manohardas Desai v. State of Bombay, (AIR 1960 SC 889), 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 the property is dishonestly misappropriated.[20]

Temporary Misappropriation

Like in the case of criminal misappropriation, the criminal breach of trust would arise even though the property is misappropriated for a short period of time or on a temporary basis.[21] Therefore, even though the property was misappropriated with an intention to restore on a future date would amount to criminal breach of trust.[22]

In the case of R Venkatkrishnan v. CBI, (2009) 11 SCC 737, the accused being a bank official made the public money available to the 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 soon and action was initiated against him by the department, the accused was made liable for criminal breach of trust.[23]

When an accused has gone against the law or violated the law which he must be abided by is also an act of criminal breach of trust if such law is the statutory norms or provisions or directives or regulations issued by any authority enforceable against the accused.[24]

Punishment For Criminal Breach Of Trust

The punishment for the offence of criminal breach of trust is provided in section 406 of the Indian penal code.[25]

“406 Punishment for criminal breach of trust—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”

Aggravated Forms Of Criminal Breach Of Trust

The aggravated forms of the offence of criminal breach of trust are- “Criminal breach of trust by carrier, etc.” under the section 407[26], “Criminal breach of trust by clerk or servant” under the section 408[27] and “Criminal breach of trust by public servant, or by banker, merchant or agent” under the section 409[28] of the penal code of India.

“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 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”

“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

“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 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 criminal breach of trust is much more severe than the offence of criminal misappropriation as the offender in the former has a beneficial position of trustee. Thus, if a breach of trust is committed by the person who is entrusted with the property and not strangers is an aggravated form of criminal breach of trust.[29]

The offence under section 409 is the most severe one as the “accused is entrusted with the property” under the capacity of a “public servant”. In order to convict a person under this section, one must prove that the accused was not only “a public servant” but also was “entrusted with property or dominion over the property” and thus “committed criminal breach of trust”.[30] Further it is important that the property entrusted to the accused was given in the capacity of a public servant and not in a personal capacity. The public servant as mentioned in section 409 need not be a government employee.[31]

[1] Indian Penal Code 1860, ss 405-409

[2] Indian Penal Code 1860, ch XVII

[3] Indian Penal Code 1860, s 405

[4] R W G, ‘Larceny, Embezzlement and Obtaining Property by False Pretences’ (1920) 20 Colum. L. Rev. 318

[5] Gary S Green, ‘White-Collar Crime and the Study of Embezzlement’ (1993) 525 Ann Am Acad Pol Soc Sci 95

[6] Superintendent and Remembrance of Legal Affairs v. S K Roy (1974) 4 SCC 230

[7] Onkar Nath v. State (NCT of Delhi) (2008) 2 SCC 561

[8] State of Madhya Pradesh v. Pramode Mategaonkar (1965) 2 Cr LJ 562(MP)

[9] State of Uttar Pradesh v. Babu Ram AIR 1961 SC 751

[10] Common Cause, A Registered Society v. Union of India AIR 1999 SC 2979

[11] RK Dalmia v. Delhi Administration AIR 1962 SC 1821

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

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

[14] Indian Penal Code 1860, s 405, explanation 1 & 2

[15] Employees’ State Insurance Act 1948, s 2, cl 17

[16] Employees’ State Insurance Act 1948, Act no 34 of 1948

[17] Employees State Insurance Corporation v. SK Aggarwal AIR 1998 SC 2676

[18] S K Alagh v. State of Uttar Pradesh AIR 2008 SC 1731

[19] Indian Penal Code 1860, s 24

[20] Jaikrishnadas Manohardas Desai v. State of Bombay AIR 1960 SC 889

[21] Jaswantrai Manilal Akhaney v. State of Bombay AIR 1956 SC 575

[22] Ramnarayan Popoli v. CBI (2003) 3 SCC 641

[23] R Venkatkrishnan v. CBI (2009) 11 SCC 737

[24] Sidhir Shantilal Mehta v. CBI (2009) 8 SCC 1

[25] Indian Penal Code 1860, s 406

[26] Indian Penal Code 1860, s 407

[27] Indian Penal Code 1860, s 408

[28] Indian Penal Code 1860, s 409

[29] Nayak Prahladbhai Bhogilal v. State of Gujarat (2001) Cr LJ 1202(Guj)

[30] Jiwan Das v. State of Haryana AIR 1999 SC 1301

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

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