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Punishment for Criminal Breach of Trust (Section 406 of IPC)

December 23, 2018 0 Comment

The first part of Section 405 is a positive part dealing with dishonest misappropriation or conversion of property, and applies where it is known that the accused had dishonestly misappropriated or converted to his own use certain property at a particular place, and the jurisdiction to try the accused will be at the place where the dishonest misappropriation or conversion has taken place.

The second part of Section 405 is a negative part, and applies where it is alleged that the accused has failed to account for the property and jurisdiction exists at the place where the property should have been delivered by the accused. The second part is to be invoked only when the first part cannot.

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The following are essential ingredients of the offence of criminal breach of trust under Section 405 are:

1) Entrusting any person with property or with any dominion over property;

2) The person entrusted:-

a) Dishonestly misappropriates or converts to his own use that property; or

b) Dishonestly uses or disposes of that property or wilfully suffers any other person so to do in violation-

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

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

Criminal or dishonest intention is a sine qua non in an offence of criminal breach of trust. This being so the prosecution has to show that the accused dishonestly misappropriated or converted to his own use or dishonestly disposed of property entrusted to him.

To constitute the offence of criminal breach of trust under Section 405 there must be dishonest misappropriation by a person in whom confidence is placed as to the custody or management of the property in respect of which the breach of trust is charged.

The ownership of beneficial interest in the property in respect of which criminal breach of trust is alleged to have been committed must be in some person other than the accused and the latter must hold it on account of some person or in some way for his benefit.

The word ‘entruated’ is not a term of law, In its most general significance all it imports is a handing over of the possession for some purpose which may not imply the conferring of any proprietary right at all. The natural meaning of ‘entrusted’ involves that the assured should by some real and conscious volition have imposed on the person to whom he delivers the goods, some species of fiduciary duty.

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 property must have confidence in the person taking the property so as to create a fiduciary relationship between them. A person who obtains possession of property by a trick cannot be deemed to have been entrusted with property within the meaning of Section 405.

For application of Section 405 there must be entrustment of property. Entrustment means handing over the proprietary right. To constitute the offence under Section 405 there must be dishonest misappropriation by a person in whom confidence is placed as to the custody or management of the property in respect of which the breach of trust is charged.

The ownership of beneficial interest in the property in respect of which criminal breach of trust is committed, must be in some person other than the accused and the latter must hold it on account of some person or in some way for his benefit. Section 405 extends to entrustment of all kinds – whether to clerks, servants, business persons or other persons, provided they are holding a position of trust. Entrustment need not be express, it may be implied.

In R.K. Dalmia v. Delhi Administration [AIR 1962 SC 1821], the Supreme Court held that the word ‘property’ is used in the IPC in a much wider sense than the expression ‘movable property’. There is no good reason to restrict the meaning of the word ‘property’ to movable property only, when it is used without any qualification in Section 405.

But it must be a property which belonged to the complainant. It does not matter that the compainant on whose behalf the property is entrusted is the owner of it or not provided there is entrustment of property.

The word ‘property’ includes the sale proceeds of goods entrusted to the accused. A cancelled cheque comes within the term ‘property’.

The property regarding which the offence is alleged to have been committed must have been ‘entrusted’ to the accused or he must have ‘dominion’ over it.

Dishonest intention is the gist of the offence of breach of trust. Dishonestly is, as defined in Section 24, IPC, causing wrongful gain or wrongful loss to a person. The meaning of wrongful gain and wrongful loss is defined in Section 23, IPC.

In order to constitute an offence, 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 unauthorised use. Dishonest intention to misappropriate is a crucial fact to be proved to bring home the charge of criminal breach of trust. Negligence is not ‘dishonestly keeping the property in possession.

If a person receives money which he is bound to account for and does not do so, he commits the offence of breach of trust, although no precise time can be fixed at which it was his duty to pay over the money.

In J.M. Desai v. S [AIR 1960 SC 889] it was observed that conviction of a person for the offence of criminal breach of trust may not in all cases be founded merely on his failure to account for the property entrusted to him, or over which he has dominion, even when a duty to account is imposed upon him, but when he is unable to account or renders an explanation for his failure to account which is untrue and inference of misappropriation with dishonest intent may readily be made.

An offence under Section 405 consists of any one of four positive acts, namely, misappropriation, conversion, user, or disposal of property.

A user of property comes within the definition of Section 405 when such user causes substantial or appreciable loss to the owner of property or gain to the accused.

Explanation to Section 405 makes the employer liable for dishonest misappropriation of employee’s contribution to Provident Fund or Family Pension Fund because he is deemed to have been entrusted with the amount of contribution so deducted.

In B.P. Gupta v. State of Bihar [2000 CrLJ 781 (Pat)], the directors of a company were prosecuted for non-deposit of PF amount of employees. It was held that directors are not in the position of the principal employer. They could not be prosecuted as there was no entrustment of the amount to them in terms of Explanation 1 to Sec. 405.

Explanation 2 to Section 405 makes the employer liable for dishonest misappropriation of employee’s contribution to the Employee’s State Insurance Fund because he is deemed to have been entrusted with the amount of contribution so deducted by him.

In Employee’s State Insurance Corporation v. S.K. Aggarwal [AIR 1998 SC 2676], it was observed that Directors of the company would not be covered by the definition of ‘principal employer’ under Section 2(17) of the Employees’ State Insurance Act. It was held that in the absence of any express provision in the Indian Penal Code incorporating the definition cannot be held to apply to the term ‘employer’ in Explanation 2.

The term employer in Explanation 2 to Section 405 must be understood as in ordinary parlance. In ordinary parlance it is the company which is the employer and not its directors either singly or collectively. Therefore the director of a company cannot be held liable for criminal breach of trust in case of default in payment of contribution to Employees State Insurance.

The words of the section are wide enough to include the case of a partner, if it be proved that he was in fact entrusted with the partnership property, or with a dominion over it, and has dishonestly misappropriated it or converted it to his use.

In R.K. Dalmia v. Delhi Administration [AIR 1962 SC 1821] it has been held that when one partner is given authority by the other partners to collect money or property of the firm, he is entrusted with dominion over that property, and if he dishonestly misappropriates it, then he comes within Section 405.

In Lok Nath v. Jagbir Suri [1982 CrLJ 1328 J & K] it has been observed that the partner, unless there is a special agreement to the effect that the partners shall hold the partnership property in trust, does not hold the partnership property as a trustee and consequently cannot be held guilty of an offence under Section 405, even if he is shown to have dishonestly misappropriated that property or converted the same to his own use.

Every partner has dominion over partnership property by reason of the fact that he is a partner and this is a dominion of a kind which a joint owner has over joint property. No joint owner can commit misappropriation in respect of the property which he owns jointly with other co-owners.

A trust is an obligation annexed to the ownership of property, and arising out of a confined reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another and the owner. Hence, where there is no original confidence there is no trust and a misappropriation, if punishable at all, will be under Section 403.

A person who pledges what is pledged to him may be guilty of offence of breach of trust. A pledgee can retain possession until all the dues coming under the agreement are cleared and, if he is a bailee who has a general lien, until the whole of the account between the parties is cleared, and he does not thereby commit any breach of trust.

In State v. Sita Ram [1998 CrLJ 4225] it was observed that where, in derogation of the statutory requirement of giving reasonable notice before disposing of the articles pledged, the pledgee sells them and the price obtained is also not commensurate with the real value of the goods, the court expressed that it may amount to criminal breach of trust.

In Janaradan Banduji Dighe v. Vishwa Karma Mandir Trust [1991 CrLJ 1095 (Bom)], the chairman of a trust was alleged to have purchased some property out of the trust money effecting the purchase in the name of his son, who was not concerned with the trust. The complaint did not disclose the ingredients of the charge against the son.

His father died while the inquiry was still pending. It was held that the principal accused having died the proceeding could not survive against the second accused. He could have been held liable under Section 405 read with Section 34 if it could be shown that he had acted in concert with his father. But the court observed that there was a total vacuum as far as any of the ingredients of Section 34 were concerned.

In order to constitute the offence of criminal breach of trust under Section 406, IPC the prosecution must prove that the accused was entrusted with some property or with dominion or power over it.

It is also to be established further that in respect of the property so entrusted, there was dishonest disposal in violation of legal contract by the accused himself or by someone else which he willingly suffered to do.

In Halimuddin Ahmad [1976 CrLJ 449 (Pat)] it was observed that where the accused took a jeep on loan for a specific purpose and for a particular period but refused to return it on demand by the complainant after the purpose had been served and the stipulated period was long over, it was held that there was of criminal breach of trust and as such the complaint could not be thrown out.

In Mohan v. State [(1960) 10 Raj 1527], the complainant entrusted some gold to the accused for being sold and the accused neither returned the gold nor the sale proceeds thereof to the complainant, it was held that an offence under Section 406 was committed.

In Babaji Bin Bhau v. R [(1867) 4 BHC (CrC) 16], the accused were entrusted with some silver for the purpose of making ornaments and they introduced copper into the ornament, it was held that the offence of breach of trust has been committed by them.

The offence of breach of trust under Section 406 is cognizable, and warrant should, ordinarily, issue in the first instance. It is not bailable. It is only compoundable with permission of Court when the value of the property does not exceed Rs. 250 and not compoundable otherwise, and is triable by a Magistrate of the first or second class.

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