Criminal Breach of Trust and Criminal Misappropriation

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This article is written by Ishika Gupta pursuing BBA L.LB from Gitarattan International Business School. This article aims to highlight the basic difference between criminal misappropriation and criminal breach of trust.

INTRODUCTION

The English word ‘embezzlement’ means ‘theft or misappropriation of funds placed in one’s trust or belonging to one’s employer’. The same act has been recognised as an offence under The Indian Penal Code,1860. As per section 405 when a person is entrusted with property or has dominion over it and he dishonestly misappropriates it or converts it for his own use in violation of any direction in which the trust is to be discharged he is liable for criminal breach of trust.

To constitute the offence under section 405 it is necessary that the property must have been entrusted with the accused or the accused must have dominion over the property, without this essential the offence can’t be covered under section 405 as said in Chelloor Mankkal Narayan vs State Of Travancore-Cochin (AIR 1953 SC 478). It must be proved that the person other than the accused had a beneficial interest in the property and the accused represents the property on his behalf. The person who owns the property is the transferor and who holds that property is called transferee. There is an implied relationship between both. The transferor is the legal owner of the property whereas the transferee has the custody for benefit of the transferor only.

For instance, X owns a travel agency and has several drivers under him. He has handed over each driver a car for the business purpose but one of them uses that car as his private taxi also. This way the driver has committed criminal breach of trust. Both requirements are fulfilled i.e. the car was entrusted to him and secondly, he converted it for his own use.

The punishment for criminal breach of trust has been prescribed under section 406. Section 407 talks about the criminal breach of trust by carrier, warehouse-keeper, Section 408 about the criminal breach of trust by clerk or servant, Section 409 about the criminal breach of trust by a public servant, banker etc.

Furthermore, in 1973 an explanation was added to section 405, later in 1975 one more explanation was added to this section. The offence under this section is non-cognizable, bailable, and triable by a magistrate. 

Essential Ingredients

(i) The property must be entrusted with the accused or the accused must have dominion over it.

(ii) The accused must have either dishonestly misappropriated or converted to his own use or dispose of that property or wilfully suffer any other person to do so by violation any legal prescription made by the contract regarding the discharge of the trust or by the violation of any law.

Hence, two main principles are entrustment and dishonest misappropriation. However dishonest misappropriation or conversion to own use is covered under Section 403 also in the form of criminal misappropriation.  

Entrustment

The word entrustment has not been specifically defined under Indian Penal Code, 1860. But in general, the meaning of entrustment is to give to another for care, protection or to commit something trustfully or play trust upon a person i.e. to hand over the property to some other person. Such transfer of property does not result in alienation of ownership or any proprietary other. This is one of the most important parts to constitute an offence of criminal breach of trust. The scope of entrustment under this article is very wide. It covers all kinds of entrustment whether it is to a clerk, banker, wharfinger etc. 

Also, the entrustment can be of any property be it movable or immovable. The Supreme Court in R.K. Dalmia v Delhi Administration said that the word property under Section 405 is not only limited to movable property. It is the court that will decide that the concerned property can be covered under the acts mentioned in the section.

Case Laws

The court has also said in Jairani Devi v Krishna Kumar Jauhari ((1985) Cr LJ 64 (All)) that, mere payment of money by X to Y would not amount to entrustment unless there are desired circumstances. In the case of loan even if the companies are mentioning it as trust it would not amount to criminal breach of trust.

For entrustment to be accounted the accused must be handed over with the property on the behalf of another person and also in this manner he should be a trustee of that property as held in Gul Bahan v W.E. Farquhar (AIR 1950 Cal 35). In simple words, there must be a fiduciary relationship between the two. Such an act should not be accidental but intentional.

The term entrustment comes along with the words ‘dominion over the property’. The word dominion in its general sense means having a position of control over something. In a company a direction is in the position of trustee and hence has the dominion over the company’s assets as mentioned in Shivnatrayan vs State of Maharashtra (AIR 1980 SC 439).

In State of Gujarat vs Jaswantlal Nathalal (AIR 1968 SC 700) the government provided cement to a person to use it for construction however, some part was given to a warehouse. But the court held that there was no fiduciary relationship and hence no entrustment. Mere sale cannot be covered under this section. 

Stridhan is under the ownership of a wife and when she entrusts it to her husband or any other family member and he dishonestly misappropriates he has committed criminal breach of the trust said the court in Rashmi Kumar vs Mahesh Kumar Bhada ((1997) 2 SCC 397).

As per explanation (i) and (ii) when an employer deducts money from the wage of an employee that is to be paid as a provident fund but he fails to pay it the same would amount to criminal breach of trust.

Dishonest Misappropriation

As per section 24 dishonesty is defined as wrongful gain or loss incurred to a person. To constitute the offence not only it has to be proved that property has been misused but also it has to be proved that there was a dishonest intention behind the act. Without proving mala fide intention i.e. mens rea the act cannot be constituted as criminal breach of trust. 

Section 403 and Section 404 talk about dishonest misappropriation and its punishment. However, under these sections, only the movable properties are covered unlike Section 405. When the accused uses the property for his own use or misappropriates with mala fide intention it is called criminal misappropriation.

In Surendra Prasad Verma vs State of Bihar (AIR 1973 SC 488) the accused was the sole person who had the access to keys of the safe and without his permission no one could open the safe. It was held that even a temporary misappropriation is covered under Section 403.

As per explanation (ii) of section 403 says that a finder of goods has kept the goods for a reasonable time period to return it its owner but has not found him, the finder may use them for his own use but if he instantly uses them it will amount to dishonest misappropriation.

In P. Dumgappa v State of Mysore (AIR 1956 Mys 40) the meaning of ‘ appropriate’ was stated as setting apart or assigning the property to oneself or to another by the exclusion of the owner.

CONCLUSION

Hence the crux of the above matter is that there is a basic difference between Section 403 and 405 i.e. between criminal misappropriation and criminal breach of trust. In criminal misappropriation, the property is movable however no such thing is mentioned in the case of criminal breach of trust. 

Another difference is that in criminal breach of trust the accused is entrusted with the property already but not in criminal misappropriation. Under Section 405 there must be a fiduciary relationship between the people.

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