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Criminal Breach Of Trust In IPC

Introduction and Meaning of Criminal Breach of Trust

Today’s world would come to a standstill if there were no interconnectedness or interdependence of people on one another for their co-existence. All activities that sustain life and protect life, liberty, and property are dependent on some form of trust. In legal terms, a trust is a relationship in which one party holds the property on behalf of and for the benefit of another in exchange for some consideration. When there is a dishonest breach of that trust, causing not only severe financial loss to the other party but also leading to abuse of power and responsibility delegated to the person so entrusted, the offence of ‘criminal breach of trust is said to have been committed.

The offence of Criminal breach of trust is similar to offence of ‘embezzlement’ in English Law. It finds mention in Section 405 of the Indian Penal Code, 1860 in chapter XVII, which deals with offences related to property. The concerned section reads as under:

“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”.”

From the above definition, the following relevant details may be stressed to classify an offense as ‘criminal breach of trust’-

1. There must be an entrustment of property to a person or dominion of a person over the property.

2. There must be dishonest or criminal misappropriation, which is covered under Section 403 of IPC, OR

3. There must be the conversion of the property for the personal use of the accused (In the definition, the terms ‘converts to his own use’ imply that the property is used or dealt with in violation of the owner’s rights[1].), OR

4. There must be dishonest disposal of the property.

5. Such misappropriation/ conversion/ disposal must be in contravention to directions of law, departmental directions, statutory rules, practices, or an express or implied legal contract between the parties.

6. Here, the terms ‘or wilfully suffers any other person so to do’ means wilfully or knowingly or voluntarily allowing any other person to do the above acts of dishonest misappropriation/ conversion/ disposal of property.

Further, the explanations to the section state that employers are also governed under the section and can be made liable for criminal breach of trust where provident funds and family pensions (as per Section 17 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952) and Insurance funds (as per the Employees’ State Insurance Act, 1948) are deducted from employees’ salary but are not paid later on to the employees. It would be considered to be dishonestly misappropriated /converted/disposed of. The section applies because the employer is said to be ‘entrusted’ with the assets or property (money) of the employees.

Essentials of Section 405 of IPC

Broadly, the core essential components of criminal breach of trust include:

1. Entrustment of property or dominion over property

There must be entrustment of assets or control over some assets to a person who holds no proprietary rights. The word entrustment refers to voluntary handing over of possession of a property or dominion over the property for a specific purpose to a person in a fiduciary or contractual arrangement. It covers all types of entrustments, whether to clerks, servants, business partners, or others, as long as they are in a position of ‘trust.’ It may either be expressed or implied.

Property here implies any asset. The term ‘dominion’ denotes control over assets. It was decided in Shivnatrayan v. State of Maharashtra[2] that a corporate director was in the position of a trustee and that as a trustee of the assets that had come into his possession, he had dominion and control over them.

2. Dishonest Misappropriation, Conversion for own use, or dishonest disposal of Property

There must be misappropriation, conversion for own use, or disposal of property to constitute a criminal breach of trust. Not only that, such misappropriation/ conversion/ disposal must be with a dishonest intention, viz., with an intention to cause ‘wrongful losses’ to the owner.[3]

It must be noted that the mode[4] or manner[5] of misappropriation or conversion or disposal of the property is not crucial to be established; proving dishonest intention is sufficient. In the case, Jaikrishnadas Manohardas Desai v. State of Bombay[6], it was held that criminal breach of trust can be inferred by proving that there was entrustment of property, or dominion over property, and the person who was entrusted with it failed to account for it.

3. Violation of direction of law or legal Contract

There must be a violation of the direction of law or a Contract. The direction of law refers to statutory as well as departmental directions, rules, practices, and directions issued by authorities in the exercise of their administrative powers.

Illustrations to the offence of Criminal Breach of Trust

To understand the offence of Criminal breach of trust, the following illustrations may be looked upon:

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 a criminal breach of trust.[7]

2. 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 a criminal breach of trust.[8]

3. X is a mechanic who is in charge of car maintenance. Y entrusts his car to X, with the agreement that it would be returned after payment of a certain fee for service. X sells the automobile in a dishonest manner. X has committed a criminal breach of trust.

4. A is the agent of B and is entrusted with the sale of B’s property. There is an express or implied contract between A and B that the proceeds from the sale would go to B, and only a percentage as the commission would go to A, the agent. The agent sells the property below the market rate against B’s directions and takes away all the proceeds for his own use. A has committed a criminal breach of trust.

5. X, a carrier, is entrusted with B’s property to be carried to another town by road. X dishonestly disposes of some goods on the way, thereby committing a criminal breach of trust.

Nature of the Criminal Breach of Trust

The nature of the offense, i.e., Criminal breach of trust is cognizable and non-bailable. It is triable by a Magistrate of the First Class. Although it is also a compoundable offence, it is only compoundable by the property owner who has entrusted the property to the accused, and the owner must primarily seek the court’s authorization for arresting the accused without a warrant.[9]

Punishment for Criminal Breach of Trust

The punishment for the offense of criminal breach of trust is dealt with under Section 406 for ‘simple’ criminal breach of trust, the definition of which is contained in Section 405 of the IPC. It provides for imprisonment up to 3 years, or fine, or both.

The punishment for aggravated forms of criminal breach of trust (under Sections 407 to 409) is mentioned in Section 407. It provides for punishment up to 7 years as well as a fine for the commission of the offence by a specific category of persons (for instance, a carrier, clerk, servant, banker, merchant, agent, among others) under sections 407 and 408, and life imprisonment/ imprisonment up to 10 years as well as fine in case of Section 409.

Forms of Criminal Breach of Trust by Specific Category of Persons

There are aggravated forms of the offence of criminal breach of trust, which deal with the commission of the offence by particular categories of persons. The additional sections have been specifically provided for with enhanced punishment of the offence because these involve a breach of trust by persons who are entitled to authority, privilege, owe greater responsibilities, or hold special trusts.

Criminal Breach of Trust by Carrier, or wharfinger, or warehouse-keeper (Section 407)

Section 407 encompasses Criminal breach of trust by the following categories of persons:

1. Carrier: A common carrier is defined under the Carriers Act of 1865 as an individual, enterprise, or company (other than the government) that conveys products for money from one location to another, through land or inland waterways, for all individuals (consignors).

2. Wharfinger: A wharfinger is defined as “one who owns or keeps a wharf, for the purpose of receiving and shipping merchandise to or from it, for hire”[10].

3. Warehouse-keeper: In ordinary usage, a warehouse keeper is one who is in charge of operating, storing and handling cargo deposited in the warehouse.

Criminal Breach of Trust by clerk or servant (Section 408)

Section 408 encompasses Criminal breach of trust by the following categories of persons:

1. Clerk: A clerk is a white-collar employee who does routine office activities. Recordkeeping, filing, staffing service counters, screening callers, and other administrative duties are standard responsibilities for clerical employees.

2. Servant: In the general sense, a servant is an employee who works for the master, however, does not hold any power to exercise authority on behalf of the master.

Criminal Breach of Trust by Public Servant, or by Banker, Merchant, or Agent (Section 409)

This is a graver form of criminal breach of trust as it involves persons who hold a special trust with the public at large or have enormous control over the property entrusted to them. Under the section, persons in such an arrangement are broadly identified as:

1. Public servant: Section 21 of the IPC defines ‘public servant’. Broadly, the term refers to a person holding any office or position in a public body.

2. Banker: A banker is a person who conducts banking operations such as receiving deposits, lending money, withdrawing funds, and exchanging money. In other terms, a banker is someone who works directly in the banking industry.

3. Merchant: A merchant is someone who trades in items made by other people, particularly in other countries.

4. Factor: A factor is a commission-based trader who receives and sells items on commission. A factor is a mercantile fiduciary who transacts business in his own name while keeping his principal undisclosed.

5. Broker: A broker is a person or company that facilitates transactions between buyers and sellers in lieu of a commission after the transaction is completed. A broker who also serves as a seller or a buyer is considered a principal in the transaction.

6. Attorney: The term “attorney” refers to a person who has been designated by another to do a task in his or her absence and who has the power to act in the place and on behalf of the person to whom he or she has been authorized.

7. Agent: Section 182 of the Indian Contract Act, 1872 defines an ‘agent’ as a person employed to do any act for another, or to represent another in dealings with a third person. An agent can be made liable under the section only when he or she dishonestly misappropriates or converts for personal use. It must be noted that an agent cannot be made liable for merely exercising control or taking decisions against the principal’s lawful directions as the agent is not bound by them.

Landmark Cases and Judicial Pronouncements on Criminal Breach of Trust

State of Gujarat v. Jaswantlal Nathalal[11]

The government sold cement to the accused only on the condition that it be utilised for construction work. A part of the cement purchased, on the other hand, was directed to a godown. The accused was pursued on criminal breach of trust charges. The Supreme Court ruled that the term ‘entrustment’ implies that the person who hands over or on whose behalf a property is given over to another continues to be the owner of such property.

Furthermore, in order to establish a fiduciary relationship, the individual handing over the property must have trust in the person receiving it. A simple sale transaction cannot be considered an entrustment. If the accused breached the terms of the sale, the sole recourse is to punish him under the cement control laws. However, no offense of criminal breach of trust was committed.

Jaswant Rai Manilal Akhaney v. State of Bombay[12]

In this case, it was ruled that entrustment occurs when securities are deposited with a bank for a specific purpose under defined circumstances. Similarly, properties handed to a company’s board would be considered entrustment because directors are in some ways trustees. However, there can be no issue of entrustment when money was provided as unlawful gratification.

State of UP v. Babu Ram[13]

The accused, a police sub-inspector (SI), had gone to investigate a theft case in a hamlet. In the evening, he noticed a man named Tika Ram hurrying over the canal and into a field. In his dhoti folds, he looked to be holding something. When the accused was searched, he discovered a bundle of cash notes. The accused took the package and subsequently handed it back to the police.

The amount refunded was less than Rs. 250/-. The monetary notes were given to the SI for a specific purpose, according to the Supreme Court, and Tika Ram had trusted the accused to return the money once he was satisfied with it. It would be a criminal breach of trust if the accused had removed the money notes.

Rashmi Kumar vs Mahesh Kumar Bhada[14]

In this case, the Apex court ruled that when a wife entrusts her stridhana property to her husband or any other member of the family with dominion over that property, and the husband or such other member of the family dishonestly misappropriates or converts that property to his own use, or wilfully allows any other person to do so, he commits criminal breach of trust.

Comparative Analysis of Important Differences

Difference Between Criminal Breach of Trust and Criminal Misappropriation

Basis of DifferentiationCriminal Breach of TrustCriminal Misappropriation
Provisions and DefinitionThe provisions related to CBT are contained in sections 405 to 409. It is defined under Section 405 of IPC.The provisions related to Criminal Misappropriation are contained in sections 403 and 404. It is defined under Section 403 of IPC.
Nature of PropertyThe property may either be movable or immovable.The property in this case is movable.
Contractual ArrangementThere is a fiduciary and contractual arrangement between the owner and the perpetrator.There is no such contract between the parties.
PossessionThe perpetrator gets possession or control of the property by virtue of an entrustment.The perpetrator gets possession of the property naturally, or by casualty, or by other means.
Nature of the offenceIt is cognizable, non-bailable, compoundable by owner with the permission of the Court and triable by a magistrate of first class. Criminal breach of trust by a public servant, or by banker, merchant or agent is non-compoundable, rest remaining the same.It is non-cognizable, bailable, and triable by any Magistrate. In case of misappropriation of property of a deceased, it is triable by a Magistrate of first class.
GravityIt is a graver offence than misappropriation.It is comparatively less grave. ‘Dishonest misappropriation’ itself is an ingredient to constitute ‘criminal breach of trust’.
PunishmentIt is punishable with 3-year imprisonment (7 years in case of aggravated forms of CBT under sections 407 and 408; life imprisonment or 10-year imprisonment in case of section 409), or fine, or both.It is punishable with 2-year imprisonment, or fine, or both. As per section 404, misappropriation of a deceased’s property is punishable by 3-year imprisonment along with a fine. Moreover, if the offence is committed by a clerk or person employed by a deceased person, punishment is of 7 years along with a fine.

Difference Between Criminal Breach of Trust and Cheating

Basis of DifferentiationCriminal Breach of TrustCheating
Provisions and DefinitionThe provisions related to CBT are contained in sections 405 to 409. It is defined under Section 405 of IPC.The provisions related to cheating are contained in sections 415 to 420. It is defined under Section 415 of IPC. It reads as under:

 

Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any proper­ty to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to “cheat”.”

Contractual ArrangementThere is a fiduciary and contractual arrangement between the owner and the perpetrator.There is no such contract between the parties.
Possession Possession is obtained by virtue of an entrustment.Possession is deceptively or fraudulently obtained by dishonestly inducing the person to deliver the property.
Nature of offenceIt is cognizable, non-bailable, compoundable by owner with the permission of the Court and triable by a magistrate of first class. Criminal breach of trust by a public servant, or by banker, merchant or agent is non-compoundable, rest remaining the same.Cheating is non-cognizable, bailable, compoundable by person cheated, and triable by any Magistrate.

 

Aggravated form of cheating, i.e., cheating by impersonation is cognizable, bailable, compoundable by person cheated and triable by any Magistrate.

Likewise, cheating with the knowledge that wrongful loss may ensue to a person whose interest the offender is bound to protect (section 418)  is non-cognizable, bailable, compoundable by a person cheated, with the permission of the Court and triable by any Magistrate.

Cheating and dishonestly inducing delivery of property (section 420) is cognizable, non-bailable, compoundable by a person cheated with the permission of the court, and triable by a Magistrate of first class.

PunishmentIt is punishable with 3-year imprisonment (7 years in case of aggravated forms of CBT under sections 407 and 408; life imprisonment or 10-year imprisonment in case of section 409), or fine, or both.As per section 417, it is punishable with up to 1-year imprisonment, or fine, or both.

 

Cheating by personation (section 416) and cheating with the knowledge that wrongful loss may ensue to a person whose interest the offender is bound to protect (section 418) is punishable with up to 3-year imprisonment, or fine, or both.

Cheating and dishonestly inducing delivery of property (section 420) is punishable with 7-year imprisonment and a fine.

Difference Between Criminal Breach of Trust and Theft

Basis of DifferentiationCriminal Breach of TrustTheft
Provisions and DefinitionThe provisions related to CBT are contained in sections 405 to 409. It is defined under Section 405 of IPC.The provisions related to theft are contained in sections 378 to 382. It is defined under Section 378 of IPC, which can be stated as follows:

 

“Whoever, intending to take dishonestly any movable property out of the possession of any person without that person’s consent, moves that property in order to such taking, is said to commit theft.”

Nature of the OffenceIt is cognizable, non-bailable, compoundable by owner with the permission of the Court and triable by a magistrate of first class. Criminal breach of trust by a public servant, or by banker, merchant or agent is non-compoundable, rest remaining the same.It is cognizable, non-bailable, compoundable by the owner, and triable by any Magistrate.

 

Theft in dwelling house, etc. (section 380) and theft after preparation made for causing, death, hurt or restraint in order to the committing of the theft (section 382) is non-compoundable, other features remaining same.

Theft by clerk or servant of property in possession of master (section 381) is compoundable by the owner of the property with the permission of the Court.

Contractual ArrangementThere is a fiduciary and contractual arrangement between the owner and the perpetrator.There is no such contract between the parties.
PossessionPossession and control over property are obtained with the owner’s consent. In other words, there is a transfer of possession of the property by the owner.the perpetrator takes away possession of the property without the consent of the owner. There is no such entrustment or transfer of possession of the property by the owner.
Nature of PropertyIt can be either movable or immovable.The property in case of theft is movable.
Completion  of the offenceThe offence is completed when the entrusted property is dishonestly misappropriated, converted for personal use, or disposed against lawful directions.The offense is completed when the property in possession of another is taken away or removed.
PunishmentIt is punishable with 3-year imprisonment (7 years in case of aggravated forms of CBT under Sections 407 and 408; life imprisonment or 10-year imprisonment in case of section 409), or fine, or both.It is punishable with 3-year imprisonment (7 years in case of aggravated forms of theft under Sections 380 and 381; rigorous imprisonment for 10 years in case of section 382), or fine, or both.

Conclusion

To sum up, criminal breach of trust, although resembles cheating, criminal misappropriation as well a theft, is a distinct crime in itself as there is a breach of privileges, responsibilities, duties, promises, and most importantly, trust, which is conferred by virtue of authority, occupation, or fiduciary relation with the owner of the property. What sets this crime apart from other crimes is that there is an ‘entrustment’, which is dishonored by dishonest misappropriation or conversion or disposal of the property in an unlawful manner, against the directions and wishes of the owner of the property.

Frequently Asked Questions (FAQs) on Criminal Breach of Trust

1. What are the main ingredients of the offence of criminal breach of trust?

The main ingredients of the offence of criminal breach of trust are as follows:
i. Entrustment of property or dominion over property.
ii. Dishonest misappropriation/ conversion for own use/ disposal of the property.
iii. Violation of direction of law or legal contract.

2. What is the meaning of ‘dominion’ over the property?

The word ‘dominion’ refers to control over the property.

3. What is the meaning of ‘conversion of property’?

In simple terms, conversion refers to using an entrusted property in a manner not intended by the owner or which is detrimental to the owner’s rights over that property, by the person so entrusted with it.

References

1. https://www.lawctopus.com/academike/criminal-breach-trust/

2. https://www.lawyersclubindia.com/articles/student-notes-ipc-criminal-breach-of-trust-11985.asp

3. K. I. Vibhute, P.S.A. Pillai’s Criminal Law, (Lexis Nexis, Gurgaon, 14th ed., 2019).

[1]Ramaswami Nadar v. State of Madras, AIR 1958 SC 56.

[2]AIR 1980 SC 439.

[3] ‘Dishonestly’ and ‘wrongful loss’ are defined under sections 24 and 23 respectively.

[4]See RamanarayanPopoli v. CBI, (2003) 3 SCC 641.

[5]See Mustafikhan v. State of Maharashtra, (2007) 1 SCC 623.

[6] AIR 1960 SC 889.

[7]Illustration (a) to section 405.

[8]Illustration (e) to section 405.

[9]Criminal Breach of Trust, available at:https://lawtimesjournal.in/criminal-breach-of-trust/(last visited on December 25, 2021).

[10]https://dictionary.thelaw.com/wharfinger/.

[11]AIR 1968 SC 700.

[12]AIR 1956 SC 575.

[13]AIR 1961 SC 751.

[14](1997) 2 SCC 397.

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Tazeen Ahmed

Tazeen Ahmed is a first-year law student at Jamia Millia Islamia, New Delhi, inquisitive about Constitutional Law, Family Law, Corporate Law, Human Rights Law, and Criminal Law. She is a proficient writer, skilled in conducting legal research and organizing her articulations on social-legal and political issues. She holds a sound academic record, having scored 93.80 % in AISSE and 95% in both Political Science and English Language in AISSCE. She has held prestigious positions in the Student Council and been adjudged the ‘Student of the Year 2016, Gurgaon’ by UnivQuest. She has formerly served as a legal intern at ubadvocate, where her performance was marked “outstanding” by the team and is an Editor at The Wall of Justice blog. She is also an avid reader, a poet, and a political enthusiast. Above all, she is a dedicated and dynamic soul, ever-prepared to undertake challenging roles in the legal battlefield, and treats constructive criticisms as stepping stones towards progress.