Criminal Breach of Trust

(Sections 405-409)
By
Prof. Shakeel Ahmad
Introduction
To constitute this offence there must be dishonest misappropriation by a person
in whom confidence is placed as to custody or management of property in
respect of which the breach of trust is charged. The ownership or beneficial
interest in the property in respect of which criminal breach of trust is alleged to
have committed must be in some person or in some way for his benefit. The
offence of criminal breach of trust is closely resembles the offence of the
embezzlement under the English law. Offences committed by trustees with
regard to trust property fall within the purview of this section.
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.

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Prof. Shakeel Ahmad

Illustrations
(a) 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
appropriate them to his own use. A has committed criminal breach of trust.
(b) 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.
(c) A, residing in Calcutta, is 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 lakhs of rupees to A, with
directions to A to invest the same in Company's paper. A dishonestly disobeys
the direction and employs the money in his own business. A has committed
criminal breach of trust.
(d) 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, though 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.
(e) 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.
(f) A, a carrier, is entrusted by Z with property to be carried by] and or by water.
A dishonestly misappropriates the property. A has committed criminal breach of
trust.

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Prof. Shakeel Ahmad

INGREDIENTS
The Section requires-
(1) Entrusting any person with property or with any dominion over
property.
(2) The person entrusted
i. Dishonestly misappropriating or converting to his own use that
property; or
ii. Dishonestly using or disposing of that property or wilfully
suffering any other person so to do 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 a trust.
This offence consists of any one of the four positive acts, namely, dishonest
misappropriation, dishonest conversation, dishonest use, or dishonest or
disposal of property. Neither failure to account for breach of contract, however
dishonest, is actually and by itself the offence of criminal breach of trust.
This section does not require that the trust should be in furtherance of any
lawful object. Offences committed by trustees with regard to trust property fall
within the purview of this section. Negligence or other misconduct causing the
loss of trust property make the person entrusted civilly responsible, but will not
make him guilty of criminal breach of trust.

ENTRUSTMENT

For application of this section there must be entrustment of property. It is sine

qua non for the offence of criminal breach of trust. There is no criminal breach
of trust where there is no entrustment. Therefore, the first ingredient which
should be fulfilled is that there should be entrustment.
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 Sec. 405 governs not only the words “with the
property” immediately following it, but also the words “or with any dominion
over the property.” Entrustment means handing over the possession of property
for some purpose which may not imply the conferring of any proprietary right.

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A trust implies a confidence placed by one man in another. Such confidence
must

Prof. Shakeel Ahmad

be voluntarily and freely placed. If confidence is obtained by playing trick, there

is no consent and no true entrustment.

Explanations 1 & 2.
Appended 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 interested with amount of the contribution deducted
and default in payment will amount to dishonest use of the amount and hence
will constitute an offence of criminal breach of trust.
Trust- A Trust is an obligation annexed to the ownership of property, and
arising out of a confidence reposed in and accepted by the owner, or declared
and accepted by him, for the benefit of another, or 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 Sec. 403.
Property- In order to constitute an offence under this section property may be
movable or immovable, because the word ‘property’ is used in this section
without any adjective. But it must be a property which belonged to the
complainant. It does not matter that the complainant on whose behalf the
property is entrusted is the owner of it or not provided there is entrustment of
property.
In the case of R.K. Dalmia vs. Delhi Administration, AIR 1962 SC 1821; the
Supreme Court observed as follow:
“the word ‘property’ is used in the court in 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 this section or other section of the penal code.”
Misappropriates-
Misappropriation with criminal or dishonest intention is a sine qua non in an
offence of criminal breach of trust. Dishonesty is as defined in Sec. 24, IPC,
causing wrongful gain or wrongful loss to person. The meaning of wrongful
gain and wrongful loss is defined in Sec. 23, IPC, (please see). Dishonest
intention to misappropriate is a crucial test to be proved to bring home the
charge of criminal breach of trust.

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Dominion Over Property- For an offence under this section either the property
must have been entrusted to the accused or he must have dominion over it. A
person is said to having dominion over property when he supervises, or
exercises control over the property or is in the charge of that property.
Prof. Shakeel Ahmad

Bimala Charan Roy, (1913) 35 All.361. The Inspector of water works whose
duty is to supervise and check the distribution of water from the Municipal
Water Works is said to be having dominion over the water belonging to his
employer. Therefore, if such Inspector deliberately misappropriates such water
for his own use or for the use of his tenants for which he pays no tax and gives
no information to his employer he would be guilty of criminal breach of trust.

Dishonestly uses or disposes of that property-

An offence under this section consists of any one of the four positive acts,
namely, misappropriation, conversion, user or disposal of property. A (user of
property) comes within this definition when such user causes substantial or
appreciable loss to the owner of the property or gain to the accused. The Madras
High Court has, however, held that for either wrongful loss are gain, the
property must be lost to the owner or the owner must be wrongfully kept out of
it. {Keshab Chandra Boral v Nityanand Biswas (1901) 6 CWN 203}
A asks B, a jeweller to make him a gold ring and pays him the cost of the gold
required for the ring. B neither delivers the ring nor returns the money. Here B
would be liable under this section.
Cases:
• Velji Raghavji Patel v State of Maharashtra, AIR 1965 SC 1433
• Bhuban Mohan Rana v Surendra Mohan Das,(1952) 2 Cal 23
• Anil Saran v State of Bihar,1996 Cri LJ 408(SC)
Wilfully suffers any other person so to do. -
This expression ‘wilfully’ means that the acts constituting criminal breach of
trust have been done deliberately or intentionally and not by accident or
inadvertence, but so that the mind of the person who does the act goes with it.
(Kedarnath, A.I.R. 1965 All.233).
Cases:
Gurumahanty Appalasamy (1894) 1 weir 464.
Jage Ram (1951) 4 Punj.286
Shailendra Nath Mitter (1943) 1 Cal. 493.
Violation of legal contract. - (Express or Implied).
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Violation of a contract in order to amount a criminal breach of trust has to be in
respect of a legal or valid contract, and not one for a criminal purpose, e.g.
purchase of stolen property, etc. In the case of Moses, (1915) 17 Bom, LR 670,
Prof. Shakeel Ahmad

the accused hired a motor car of the complainant company under a hire-
purchase system, which provided that until the car is fully paid for by the
accused the car was to remain the absolute property of the company. The
accused agreed during the hiring not to assign, underlet or part with possession
of the car in any way. Whilst the agreement was in force the accused pledged
the car to three different persons on three different occasions. It was held that
the accused was guilty of criminal breach of trust as the pledging of the car by
him was a violation of legal contract made by him in regard to the hire of the
car and that violation amounted to dishonestly.

Period of Limitation. - Prescribed for this offence is that of three years.

Offence under this section is of a continuing nature. Every day a fresh cause of
action keeps occurring until the property is actually returned. {Balram Singh v
Sukhwant Kaur,1992 CrLJ972 (P&H)}.
Punishment-
Section 406 is the charging section for simple form of criminal breach of trust
as defined in section 405 and the punishment provided for is imprisonment
which may extends to three years, or with fine or with both.
Section 407 to 409 deal with aggravated forms of criminal breach of trust.
Section 407 provides for enhanced punishment upto 7 years in case of
commission of criminal breach of trust by persons entrusted with property as a
carrier etc.

Difference between theft and criminal breach of trust.

1. In theft property is moved from the possession of another man with

dishonest intention. In criminal breach of trust, the offender is lawfully
entrusted with the property and he dishonestly misappropriates it.
2. In theft, the offender comes in possession of the property without the
consent of the person in possession. In criminal breach of trust, the
possession is derived with the consent of the owner.
Difference between criminal breach of trust and criminal misappropriation
of property.

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1. In the offence of criminal breach of trust, there is a contractual
relationship between the parties. Whereas, In the offence of criminal
misappropriation of property no contractual relationship exists in between
the parties.
Prof. Shakeel Ahmad

2. In CBoT, conversion takes place with respect to the property held by a

person in a fiduciary capacity. In the offence of criminal misappropriation
of property no contractual relationship exists in between the parties.

3. In CBoT, the property is lawfully entrusted to the offender & the offender
holds the property subject to some obligations, duties or trust but he
dishonestly misappropriates it or wilfully suffers any other person instead
of discharging the duties and obligations attached to the trust. In Criminal
Misappropriation of Property, possession of the property is acquired by
the offender not lawfully but casually or otherwise and the offender
misappropriates the property afterwards.