The article is written by Nikhil Thakur from Manav Rachna University. In this article, the author aims at explaining the various nuances (explanation, ingredients, punishment) of Section 406 of the Indian Penal Code,1860. Moreover, the author has cited several judgments of various courts concerning criminal breach of trust.

Introduction

Establishing trust consumes a lot of time while destroying it is a matter of seconds. There are a plethora of instances like; when a person is not in the position of controlling their property as the case may be and for that purpose such person engages another person to take care of that property is said to have created a trust. Whenever a person has been entrusted with a property, the person so entrusted must take care of the said property with utmost good faith and shall not utilise the same for his/her personal use.

Chapter 17 (XVII) of the Indian Penal Code (IPC), 1860 deals with an important provision that is ‘Criminal Breach of Trust’. Section 405 of the IPC, 1860 aims at defining in detail what is ‘Criminal Breach of Trust’. Moreover, Section 406 furnishes the punishment for criminal breach of trust that may be extended upto to a period of 3 years of imprisonment or fine or both.

Criminal breach of trust

As stated previously, the provision dealing with criminal breach of trust is Section 405 of the Indian Penal Code, 1860. This Section states that:

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.’

From the above-mentioned statement, it is clear that criminal breach of trust means that whosoever is; 

  1. incharge or has been entrusted with property or any dominion over that property dishonestly misappropriated or converts the same to his own use as the case may be, or 
  2. disposes of the property in violation of the directions rendered under the law, or 
  3. enters into any legal contract that discharges such trust, or 
  4. makes the other person suffer. 

is said to have committed a criminal breach of trust and is sufficient to be covered under the scope of Section 405 of the Indian Penal Code, 1860. 

The Supreme Court of India under the case of Smt. Rashmi Kumar v. Mahesh Kumar Bhada (1996), held that in case wife entrusts her stridhan and further hands over the control to her husband or any other member of the family and the husband or such other member of the family dishonestly misappropriated that property (stridhana) is said to have committed criminal breach of trust and is liable to be punished under Section 406 of the Indian Penal Code, 1860.

Explanation prescribed under Section 405 IPC

Section 405 of the Indian Penal Code,1860 lays out two explanations that are:

  1. The first explanation states that, if an employer has deducted the employee’s contribution from the wages which is a part of the employee’s provident fund or family pension fund shall be considered as an entrustment of such amount so deducted.

When the employer makes a default during the payment of the so deducted amount towards the provident fund or family pension fund is said to have utilised such an amount dishonestly.

  1. The second explanation says that, if an employer has deducted the employee’s contribution from the wages which is a part of the employee’s state insurance fund that is administered by the Employees’ State Insurance Corporation it shall be considered as an entrustment of such amount so deducted.

When the employer makes a default during the payment of the so deducted amount towards the employees’ state insurance fund is said to have utilised such an amount dishonestly.

In a Supreme Court case of Employees State Insurance Corporation v. S.K Aggarwal,1998 the Hon’ble Court held that under the Employees State Insurance Act,1948 the principal employer means and includes the occupier or the owner. Hence, the company’s director will not be covered within the definition of employer. Upon such findings of the case, the Supreme Court quashed the criminal proceedings initiated against the director under Section 405 of IPC, 1860.

Ingredients of criminal breach of trust 

Chiefly, there are two main ingredients of criminal breach of trust:

  1. That the accused must have been entrusted with a property,
  2. That the accused must have dishonestly misappropriated the property or has utilised or disposed of the same in violation of trust.

Entrusted

“Entrustment” of property under Section 405 of the Indian Penal Code, 1860 is pivotal to constitute an offence under this. The term entrustment used under this Section is vague and wide enough to include other aspects. Therefore, entrustment extends to clerks, servants, business officials, agents or any other person holding the position under trust.

In the case of Som Narth Puri v. the State of Rajasthan (1972), the Hon’ble Supreme Court gave the ruling that the term entrustment is wide enough to include all those properties that are willfully handed over for a specific purpose or motive. Furthermore, entrustment shall not be only expressed instead it can also be implied as held in the case of the State of Madhya Pradesh v. Pramode Mategaonkar (1965).

In a landmark Supreme Court judgement of R.K Dalmia v. Delhi Administration (1962), the Supreme Court stated that the term property used under the Code is wide enough as compared with the moveable property. Further, the Hon’ble Court observed that various nuances of the term property shall not be confined to moveable property while dealing under Section 405 of the Indian Penal Code, 1860.

In the case of Shivnarayan Laxminarayan Joshi v. the State of Maharashtra (1980), the Hon’ble Supreme Court stated that the term dominion refers to control over the property. Hence, the director of a company in the position of a trustee or holder of the assets has dominion over the said property.

Misappropriated

Another vital ingredient of criminal breach of trust is “dishonest misappropriation”. Section 24 of the Indian Penal Code,1860 defines what is dishonesty; the act of causing wrongful gain to one person and wrongful loss to another intentionally is said to have committed dishonesty.

Moreover, the phrases wrongful gain and wrongful loss are defined under Section 23 of the Indian Penal Code,1860. The gain, which is made by an unlawful means by a person who is not entitled to such property is known as wrongful gain while the loss, made by an unlawful means to a person who is legally entitled to such property is known as wrongful loss.

The essence of this Section is that the property must be used by the accused dishonestly for an unauthorised purpose. Mere mismanagement of money is not sufficient to constitute an offence under Section 405 of the Indian Penal Code,1860. 

Dishonest misappropriation may not be available at the first instance or as a matter of proof every time, however, when it is established that the property has been entrusted with a person and the same got control over the property and he has rendered a false explanation for his failure to account for it, in such a case, the conception of misappropriation with dishonest intention can be made readily, as held in the case of Jaikrishnadas Manohardas Desai v. the State of Bombay (1960).

Moreover, in the case of Surendra Prasad Verma v. the State of Bihar (1973), the accused was holding control of the keys to a safe. The Hon’ble Court gave the ruling that irrespective of the fact that whether the accused had the possession of those keys at the time of misappropriation or not, the accused shall be held liable because the accused alone had the keys, except him nobody had the access to the safe. To safeguard himself, the accused must satisfy the Court that he parted with the keys to the safe or he had no access to them.

Krishan Kumar v. the Union of India, AIR (1959)

In the above-mentioned case, the accused was an assistant storekeeper at the Central Tractor Organisation (CTO), Delhi. He was conferred with several duties of which one of his duties was to take delivery of consignments of those goods which were received by railways for the Central Tractor Organisation (CTO). 

The accused took the delivery of a specific lot of iron and steel from Tata Iron and Steel Co, Tatanagar. However, the goods though removed from the railway’s depot woefully didn’t reach the Central Tractor Organisation (CTO). 

Upon the proceedings of the case, the prosecution fizzled to establish that the goods were misappropriated by the accused and even failed to show the exact purpose for which those goods were put to. Therefore, the matter went to the Supreme Court, and it was held that it is not essential in every case to prove or show how the accused has misappropriated the goods of his master. The intention of the accused also needs to be emphasised, hence, there is no need to have direct proof of misappropriation. 

Criminal breach of trust and criminal misappropriation

Criminal Breach of TrustCriminal Misappropriation
Criminal breach of trust is enshrined under section 405 of the Indian Penal Code, 1860.Criminal misappropriation is defined under section 403 of the Indian Penal Code, 1860.
Under criminal breach of trust, it is essential that the property so entrusted has been converted for personal use by such person to whom such property was entrusted.Criminal misappropriation is a wider terminology as compared with criminal breach of trust. Under criminal misappropriation, the defaulter has been under the possession of the property in any way. 
Under criminal breach of trust, there is a contractual trust which is established. Hence, a contractual relationship is created.However, under criminal misappropriation, no contractual relationship is established.
Under this, the person is entrusted with property and such entrusted person dishonestly misappropriates it and converts the same for his/her own use.Under this, the offender is not entrusted with the property, however, such person obtains possession of the property in response to an accident or causality which is later converted by him/her for personal use.
The punishment for criminal breach of trust under the Indian Penal Code is three years of imprisonment or with a fine or both.The punishment for criminal misappropriation under the Indian Penal Code is two years imprisonment or with a fine or both.

Section 406 IPC

Section 406 of the Indian Penal Code (IPC), 1860 stipulates the penalties for criminal breach of trust. Section 406 states as follows; that any person who commits criminal breach of trust shall be punished with an imprisonment of a term extendable upto 3 (three) years or fine or both accordingly. The offence of criminal breach of trust is abnormally tried by the magistrate of the 1st class. Furthermore, it is a non-compoundable and bailable offence.

Penalties for criminal breach of trust

Under the Indian Penal Code,1860 the offence of criminal breach of trust is a cognizable (cases when police may arrest without a warrant) and non-bailable offence. Punishment for committing a criminal breach of trust depends upon the type of person who has committed the offence;

  1. As per Section 406 of the Indian Penal Code,1860: Any person who is guilty of an offence for committing criminal breach of trust shall be liable with an imprisonment of a term extendable upto 3 (three) years or fine or both accordingly.
  2. As per Section 407 of the Indian Penal Code,1860: when a criminal breach of trust is committed by the carrier, warehouse, wharfinger, etc,. The accused shall be punishable with imprisonment for a term extendable upto a period of 7 (seven) years or fine or both.
  3. According to Section 408 of the Indian Penal Code,1860: when a criminal breach of trust is committed by a clerk or servant he/she shall be punished with imprisonment for a term extendable upto a period of 7 (seven) years or fine or both.
  4. According to Section 409 of the Indian Penal Code,1860: when a criminal breach of trust is committed by a public servant, banker, merchant, agent, etc,. He/She shall be punished with imprisonment for life or imprisonment upto a period of 10 (ten) years or fine or both.

Conclusion

By going through Section 405 of the Indian Penal Code,1860 it is clear that there are two main ingredients of criminal breach of trust that are entrustment and dishonest misappropriation of the property. Therefore, in order to constitute an offence under Section 406 of the Indian Penal Code, 1860 it is pivotal that both the ingredients of the criminal breach of trust are fulfilled.

The punishment for criminal breach of trust has been enumerated under Section 406 of the Indian Penal Code,1860; that is imprisonment which is extendable upto a period of 3 years or fine or both which further depend upon the type of person who has committed the offence. 

References


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