Sardar Singh vs Karam Singh

Y.P. Nargotra, J.—If a partner of a firm receives money on behalf of the firm and does not deposit the same with the firm. Can he be

charged for the commission of the offence of Criminal mis-appropriation is the question arising for consideration in this case ?

The basic facts are that the respondent-complainant filed a criminal complaint against the petitioner-accused seeking his trial for commission of

the offences u/s 420, 193 and 403 R.P.C., on the allegations that complainant and accused are partners of a firm engaged in the business of

fabrication. The parties who are brothers and with their deceased father constituted the partnership by virtue of a partnership deed executed and

registered on 24-03-1984. In 1991 disputes arose between the parties and for resolving disputes an arbitrator has been appointed who is yet to

pass the award. For the assessment years 1987-88, 1988-89, 1989-90 the assessing authority under J&K General Sales Tax Act, passed

assessment orders dated 4-10-1991, 13-03-1993 and 29-10-19993, fixing the tax liability of the firm at Rs. 4,04,100/- which amount was

deposited by the firm and then three appeals were filed by the accused on behalf of the firm before Dy. Commissioner, Sales Tax, who by his

order dated 27.06.1999, set aside the assessment orders and remitted the case back to Assessing Authority for fresh assessment. Assessing

authority re-assessed the tax liability of the firm and allowed a refund of Rs. 3,82,779/-. The accused/petitioner partner received the amount of

refund on 19.03.1998 but he did not deposit the same in the firm's account, hence the other partner the respondent-complainant filed the criminal

complaint.

Learned Sub-Registrar Judicial Magistrate Jammu dismissed the complaint by his order dated 30-05-2000 by holding that offences alleged

were not constituted.

The complainant aggrieved by the said order went in revision before the Additional Sessions Judge, Jammu. Learned Additional Sessions Judge,

by his Order dated 7-09-2000 set aside the order of the trial court being of the view that offence of criminal breach of trust was prima facie made

out against the accused Sardar Singh, the other partner of the firm. The accused Sardar Singh has, therefore, challenged the order of the learned

Additional Sessions Judge, Jammu in this Criminal revision.

Learned counsel for the accused petitioner has contended that the view expressed by learned Additional Sessions Judge is not in consonance

with the law and, therefore, deserves to be set aside, whereas the order of the learned trial court being based upon the correct appreciation of law,

requires to be up-held.

The offence of Criminal Breach of Trust has been defined in Section 405 of the RPC thus:

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 willfully suffers any other person so to do, commits ""criminal breach of trust"".

It is obvious from bare reading of the Section that for constituting the offence of criminal breach of trust, it is necessary to establish entrustment

of the property or dominion of the property to the accused. What law requires is that the accused should receive the property of another and hold

it on behalf of the other so that he should be a trustee of the property. An owner of the property in whichever way he uses the same with whatever

intention is not liable for misappropriation, even if he is not the exclusive owner thereof. A partner in the firm has his own undivided ownership

alongwith other partners over all the assets of the partnership, therefore, ordinarily, if he chooses to use any of them for his own purpose he may be

accountable civilly to the other partners, but does not thereby commit any misappropriation. Every partner has dominion over the property of the

firm by reason of his being a partner thereof but such kind of dominion over the property of the firm is not sufficient for constituting the offence of

Criminal breach of trust. For constituting the offence, it is further required to be established that the dominion over the property of the firm was

specially entrusted under a special contract to such partner who has misappropriated the same. The offence would not be in respect of the

property of the firm but is in respect of the property specially entrusted when by a special contract the dominion over the property of the firm is

entrusted to a person who may be a partner, such person's dominion over the property would not be because he is a partner of the firm but shall

be because the same has been entrusted to him by the other partners through special contract and, therefore, he holds the same for them in a

fiduciary capacity. If he misappropriates the same he commits the offence of criminal breach of trust.

In case titled Velji Raghavji Patel Vs. State of Maharashtra, the Hon'ble Supreme Court considered the question whether a partner can be

convicted u/s 409 I.P.C. on the ground that his failure to account for monies belonging to the firm in which he was a partner amounts to criminal

breach of trust.

Their Lordships while accepting the view of Full Bench of Calcutta High Court, expressed in State of Bombay Vs. Narothamdas Jethabai and

Another, and later view of the same High Court taken in Okhoy Coomer Shah's case 13 BLR 307 observed as follows: --

Upon plain reading of Section 405 I.P.C. it is obvious that before a person can be said to have committed criminal breach of trust it must be

established that he was either entrusted with or entrusted with dominion over property which he is said to have converted to his own use or

disposed of in violation of any direction of law, etc. Every partner has dominion over property by reason of the fact that he is a partner. This is a

kind of dominion which every owner of property has over his property. But it is not dominion of this kind, which satisfies the requirements of

Section 405. In order to establish ""entrustment of dominion"" over property to an accused person the mere existence of that person's dominion over

property is not enough. It must be further shown that his dominion was the result of entrustment. Therefore, as rightly pointed out by Harris, C. J.,

the prosecution must establish that dominion over the assets or a particular asset of the partnership was, by a special agreement between the

parties, entrusted to the accused persons. If in the absence of such a special agreement a partner receives money belonging to the partnership he

cannot be said to have received it in a fiduciary capacity or in other words cannot be held to have been ""entrusted"" with dominion over partnership

properties.

In Debabrata Gupta Vs. S.K. Ghosh, , is on the facts that the appellant and the respondent were partners in a firm and disputes arose between

them. The respondents sent to the appellant a notice for dissolution of a partnership, and lodged a complaint against the appellant alleging criminal

breach of trust u/s 406 of the I.P.C. The appellant moved the High court for quashing the criminal proceedings. The High Court refused to quash

the process against the appellant. On appeal, the Supreme Court held that the offence of criminal breach of trust u/s 406 is not in respect of

property belonging to the partnership but is an offence committed by the person in respect of property, which has been specially entrusted to such

a person, which he holds in fiduciary capacity.

In Anil Saran Vs. State of Bihar and another, , their Lordships have held: --

It is next contended that the appellant, being a partner in the firm, cannot be said to have committed criminal breach of trust of his own funds and

that, therefore, it is a case of civil liability only. The contention that one partner cannot commit criminal breach of trust against other partners,

though prima facie alluring, on facts of this case, it docs not appear to be tenable. Partnership firm is not a legal entity but a legal mode of doing

business by all the partners. Until the firm is dissolved as per law and the accounts settled, all the partners have dominion in common over the

property and funds of the firm. Only after the settlement of accounts and allotment of respective share, the partner becomes owner of his share.

However, criminal breach of trust u/s 406 is not in respect of the property belonging to the partnership firm, but is an offence committed by a

person in respect of the property which has been specially entrusted to such a person under a special contract and he holds that property in

fiduciary capacity under special contract. If he misappropriates the same, it is an offence.

In Mahal Chand Sikwal Vs. State of West Bengal and Another, Calcutta, the view expressed was that there cannot be any charge of mis-

appropriation against a partner of a Partnership firm by the other partner until and unless there has been a proper account of a partnership business

on the dissolution of such business and until and unless it is found that any sum is due from one partner to another. Therefore, where the complaint

by a partner u/s 403 alleged that the other partner had converted the partnership business into ownership business and had not paid him his share

of the partnership business, no offence of misappropriation u/s 403 is made out when there is no allegation that the partnership has been dissolved.

Learned trial court after relying upon Velji Raghavji Patel Vs. State of Maharashtra, as well as Mahal Chand Sikwal Vs. State of West Bengal and

Another, of Calcutta High Court, came to the conclusion that the charge of misappropriation against the accused partners could not be established.

The contrary view, however, has been taken by the learned Additional Sessions Judge, by placing reliance upon case titled R.K. Dalmia Vs.

Delhi Administration, . In that case their Lordships were dealing with the case of breach of trust by Chairman and Director of the Company and

not by the Partners. However, while dealing with the contention of one of the appellants/accused, Their Lordships for explaining the principle of

law involved, referred the case of the partners also. It has been observed by Their Lordships: --

(79) It has been urged for Chokhani that he could not have committed the offence of criminal breach of trust when he alone had not the dominion

over the funds of the Insurance Company, the accounts of which he could not operate alone. Both Raghunath Rai and he could operate on the

accounts jointly. In support of this contention, reliance is place on the case reported in Bindeshwari Prasad Jaysawal Vs. Emperor, We do not

agree with the contention.

(80) Bindeshwari Prasad Jaysawal Vs. Emperor, , does snot support the contention. In that case, a joint family firm was appointed Government

stockist of food grain. The partners of the firm were Bindeshwari and his younger brother. On check, shortage in food grain was found.

Bindeshwari was prosecuted and convicted by the trial court of an offence u/s 409 I.P.C. On appeal, the High Court set aside the conviction of the

Bindeshwari of the offence u/s 409 I.P.C. and held him not guilty of the offence under the at section as the entrustment of the grain was made to

the firm and not to him personally. The High Court convicted, instead of the offence u/s 403 I.P.C. This is clear from the observation at p. 715(of

ILR Pat.) : (at p.74 of AIR):

In my opinion, the Government rice was entrusted to the firm of which the petitioner and his younger brother were the proprietors. Technically

speaking there was no entrustment to the petitioner personally."" This case clearly did not deal directly with the question whether a person who

jointly with another, has dominion over certain property, can commit criminal breach of trust with respect to that proper or not.

(81) On the other hand, a Full Bench of the Calcutta High Court took a different view in Queen v. Okhov Coomar Shaw 21 SWR (Cri.) 59. The

Court said:

We think the words of Section 405 of the Penal Code are large 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 own use.

(82) Similar view was expressed in Emperor v. Jagannath Raghunathdas. 33 Bom. LR 1518: AIR 1932 Bom 57 Beaumont C. J., said at page

1521(of Bom LR): (at p. 58. of AIR):

But in my opinion, the words of the section(S.405) are quite wide enough to cover the case of a partner. Where one partner is given authority by

the other partners to collect moneys or property of the firm I think that he is entrusted with dominion over that property, and I think he comes

within the section.

Barlee J., agree with this opinion.

(83) The effect of Raghunath Rai's delivering the blank cheques signed by him to Chokhani may amount to putting Chokhani in sole control over

the funds of the Insurance Company in the Bank and there would not remain any question of Chokhani's having joint dominion over those funds,

and this contention, therefore, will not be available to him.

Learned counsel for the respondent-complainant Mr. Thakur very vehemently argues that the view expressed by a three Judge Bench of the

Supreme Court in R.K. Dalmia's case supra should prevail over the view expressed in Velji's case (supra), which is a two judge Bench decision.

In my considered view no such question arises at all because there is no conflict in the views expressed in the two Judgements of the Apex

Court. In Velji's case the view of Bombay High Court that for constituting entrustment it is necessary that one partner must have given authority by

the other partners for collecting the monies of the firm and that has been view of the Apex Court in the later case also.

The question involved in the present case, therefore, is whether in the circumstances of the case, there was special entrustment of the dominion

over the property of the firm by the other partners.

The learned counsel for the petitioner submits that Clause 7 of the Partnership agreement constitutes a special contract for entrusting the

domain over the properties of the firm in favour of the accused/partner and by not depositing the refunded amount into the account of the firm he

has committed the offence of mis-appropriation.

Clause 7 reads:

That bankers of the firm shall be such bank/s as the partners may determine for time to time. The banking account/s shall be operated by partner

No. Second.

I am not impressed by the submission of Mr. Thakur. By no stretch of reasoning the aforesaid clause can be construed to be a special contract

to receive the amount of refund on behalf of the complainant. The appeals were filed by the accused on behalf of the firm and amount of refund

was also received by him on behalf of the firm. In the said amount, the complainant and the accused both possessed their undivided share. There

was no specific entrustment of the share of complainant made to the accused. The accused had received the property of the firm and not of the

complainant alone. Therefore in the circumstances of the case no case for criminal breach of trust is made out. Learned trial court was right in

holding by its well reasoned order that no offence was constituted against the accused. Learned Additional Sessions Judge Jammu, appears to

have fallen in error while appreciating the ratio of R.K. Dalmia Vs. Delhi Administration, .

For the aforesaid reasons the order impugned passed by learned Additional Sessions Judge Jammu is set aside and the order of learned trial

court is restored. Revision allowed.