REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 1069 OF 2004

State of Punjab …Appellant

Versus

Pritam Chand and Ors. …Respondents

JUDGMENT

Dr. ARIJIT PASAYAT, J.

1. Challenge in this appeal is to the judgment of a learned Single Judge

of the Punjab and Haryana High Court dismissing the appeal filed by the

State  of  Punjab  against  the  judgment  of  acquittal  recorded  by  learned

Judicial Magistrate,  Ist Class, Samana.  The respondents  were charged for

alleged commission of offence punishable under Section 406 of the Indian

Penal Code, 1860 (in short the ‘IPC’). They were partners of one Jagdamba

Rice Mills  to whom the paddy was entrusted for milling by the Punjab State

Civil Supplies Corporation Ltd. (in short the ‘Corporation’) during the year

1983-84.  It was alleged that the accused failed to account for the paddy and

thus misappropriated the same. Pursuant to arbitration clause between the

parties  an  arbitrator  was  appointed  and an  award  of  Rs.1,81,315.43  was

rendered in favour of the Corporation. The trial Court acquitted the accused

on the ground that the matter arose out of breach of contract, the same was

of civil nature and a criminal case against the accused was not made out.   

2. High Court endorsed the view and dismissed the appeal.

3. In support of the appeal, learned counsel for the State submitted that

the  High  Court’s  judgment  is  totally  unreasoned  as  no  reason  has  been

indicated.   Merely because there was allegedly a breach of contract,  that

cannot in all cases rule out the criminal prosecution. It is pointed out that

even the arbitration award on which reliance has been placed by the trial

Court  to  direct  acquittal,  was  a  factor  in  favour  of  the  Corporation  and

without examining the ingredients of Section 406 IPC the trial Court and the

High Court directed acquittal.  

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4. Section 406 IPC deals with punishment for criminal breach of trust.

In a case under Section 406 the prosecution is  required to prove that the

accused was entrusted with property or he had dominion over the property

and that the accused misappropriated  or converted the property to his own

use or used or disposed of the property or willfully suffered any person to

dispose of the property dishonestly or in violation of any direction of law

prescribing the mode in which the entrusted property should be dealt with or

any legal contract express or implied  which he had entered into relating to

carrying out of the trust.  

5. Criminal  breach  of  trust  is  defined  in  Section  405  IPC.  The

ingredients of offence under Section 405 are (i) entrusting any person with

property or with dominion over the property, (ii)  the person entrusted (a)

dishonestly misappropriated or converted to his own use the property or (b)

dishonestly used or disposed of the property or willfully suffered any other

person so to do in violation (i) of any direction of law prescribing mode in

which  such  mode is  to  be  discharged  or  (ii)  of  any legal  contract  made

touching the discharge of trust.

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6. In Rajesh Bajaj v. State NCT of Delhi (1999 (3) SCC 259) it was held

as follows:

“10. It may be that the facts narrated in the present complaint would  as  well  reveal  a  commercial  transaction  or  money transaction.  But  that  is  hardly  a  reason  for  holding  that  the offence  of  cheating  would  elude  from such a  transaction.  In fact,  many  a  cheatings  were  committed  in  the  course  of commercial  and  also  money  transactions.  One  of  the illustrations set out under Section 415 of the Indian Penal Code [Illustration f] is worthy of notice now: “(f)  A intentionally  deceives  Z into  a  belief  that  A means  to repay  any  money  that  Z may  lend  to  him  and  thereby dishonestly induces  Z to lend him money,  A not intending to repay it. A cheats.”

7. While dealing with a  case under Section 482 of the Code of Criminal

Procedure, 1973 (in short the ‘Code’) this Court referred to the aforesaid

judgment  and  held  that  merely  because  an  act  has  a  civil  profile  is  not

sufficient to denude it of its criminal outfit.  

8. In  Trisuns Chemical Industry v.  Rajesh Agarwal and Ors. (1999 (8)

SCC 686) it was noted as follows:

“9. We are unable to appreciate the reasoning that the provision incorporated  in  the  agreement  for  referring  the  disputes  to arbitration is an effective substitute for a criminal prosecution when the disputed act is an offence. Arbitration is a remedy for

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affording  reliefs  to  the  party  affected  by  breach  of  the agreement but the arbitrator cannot conduct a trial of any act which  amounted  to  an  offence  albeit  the  same  act  may  be connected  with  the  discharge  of  any  function  under  the agreement.  Hence,  those  are  not  good  reasons  for  the  High Court  to axe down the complaint at  the threshold itself.  The investigating agency should have had the freedom to go into the whole gamut of the allegations and to reach a conclusion of its own. Pre-emption of such investigation would be justified only in very extreme cases as indicated in State of Haryana v. Bhajan Lal. (1992 Supp (1) SCC 335)”

(Underlined for emphasis)

9. These aspects were not considered by the trial Court and, therefore,

the High Court should not have in a summary manner dismissed the appeal

after having recorded that a criminal case may arise even when breach of

contract is also there and there is no bar for prosecution under the criminal

law.  Having said so, the High Court came to an abrupt conclusion because

two views are possible  as  to  whether  the allegation  made was of  a civil

dispute or of a criminal nature no interference was called for. The approach

is clearly erroneous. Therefore, we set aside the impugned judgment of the

High Court and remit the matter to it for fresh consideration in accordance

with law.  

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10. The appeal is allowed to the aforesaid extent.    

......................................... .............J.

(Dr. ARIJIT PASAYAT)

……..………….............................J. (Dr. MUKUNDAKAM SHARMA)

New Delhi February 11, 2009

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