04 May 1956
Supreme Court


Case number: Appeal (crl.) 152 of 1954






DATE OF JUDGMENT: 04/05/1956


CITATION:  1956 AIR  575            1956 SCR  483

ACT:        Criminal  breach of trust-Conviction of a  banker,  Validity        of--Government Promissory Notes pledged with a bank to cover        overdraft  -No  overdraft by the  pledgor-Managing  Director        acting on behalf of all-the Directors pledging the Notes  to        borrow  money for the use of the bank-Legality-Sale  of  the        Notes by the creditors to realise their dues and  consequent        inability of the bank to return them-Mens rea --Sanction  to        prosecute  by  the  Company Judge, if  required  Framing  Of        charge,  if defective-Indian Penal Code (Act XLV  of  1860),        ss.  409, 79-Indian Contract Act (IX of 1872) s.  179-Indian        Companies  Act(VII  of  1913),  S.179--  code  of   Criminal        Procedure(Act V of 1898), ss. 221, 222, 223.

HEADNOTE:        The appellant was the Managing Director of a bank and held a        power  of  attorney to act on behalf of  its  Directors  and        authorising  him  to  borrow money on behalf  of  the  bank.        Certain  Government -Promissory Notes were pledged with  the        bank  by another bank to cover an overdraft account up to  a        specified  amount.  There was, however, no overdraft by  the        pledgor.   The  pledgee bank was in a  precarious  financial        condition.   The  appellant pledged the  securities  with  a        third  party  to get a loan for the bank’s use  and  on  its        failure        484        to  repay  the  same  on  demand,  the  creditors  sold  the        securities  for realising their dues.  The pledgee bank  was        thus  no  longer in a position to return the  securities  on        demand  made by the pledgor.  Information. was  lodged  with        the  police  at  the instance of  the  -Official  Liquidator        appointed  to wind up the bank and the appellant was put  up        for trial under s. 409 of the Indian Penal Code.        Held,  that the appellant was guilty of the offence  charged        and the appeal must be dismissed.        Held  further, that in the absence of any overdraft  by  the        pledgor,  the  pledgee  bank acquired  no  interest  in  the        securities  which  it  could deal with and  s.  179  of  the        Contract Act had no application.        That the delivery of the securities by the pledgor made  the        pledgee a trustee for him and he remained the owner  subject



      to any especial interest created in favour of the pledgee by        the  agreement  and in a case, such as  the  present,  where        there  was  no question of redeeming the securities  by  the        pledgor,  there  having been no overdraft, or  sale  by  the        pledgee in enforcement of any especial interest, as none had        accrued  to it, the pledgee bank had no right to  deal  with        the securities.         That the question whether the remedy of the pledgor was  by        way  of a suit for damages for breach of contract or by  way        of  a  criminal prosecution would depend on whether  or  not        there  was  mens rea and. other  elements  constituting  the        offence.        That  although  the  offence of  criminal  breach  of  trust        presupposes  an  entrustment,  such  entrustment  need   not        conform to all the technicalities of the law of trust,  and,        consequently,  in  a  case such as  the  present  where  the        accused had the necessary power and exercised dominion  over        the  securities and caused wrongful loss to the pledgor  and        wrongful gain to the pledgee by dealing with the securities,        he was guilty of the offence.        That  the provisions of s. 79 of the Indian Penal Code  were        of  no avail to him as it was never pleaded in  his  written        statement nor found by the courts below that he Was  unaware        of the fact that there had been no overdraft at all.        That  no sanction under s. 179 of the Companies Act was  re-        quired for the prosecution.  The provisions of that  section        were of a permissive character enabling the court Liquidator        to  do certain things with the permission of the  court  and        did not in any way control the general law so as to restrict        the  power of the court to take cognisance of an offence  or        of the Police to initiate a prosecution or even of a private        citizen  to  move the machinery of the  criminal  courts  to        bring an offender to justice.        Basdeo  Agarwalla  v.  King-Emperor,  ([1946]  F.C.R.   93),        distinguished and held inapplicable.        That  the  charge framed against the accused  fulfilled  the        requirements  of ss. 221 and 222(1) of the Code of  Criminal        Procedure and        485        as  the particulars mentioned in the charge were  sufficient        to  give him notice of the matter he was being charged  with        it  was  not  necessary to set out also the  manner  of  the        commission of the offence as required by s. 223 of the Code.

JUDGMENT:        CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No. 152  of        1954.        Appeal  by Special Leave from the Judgment and  Order  dated        the  20th October 1953 of the Bombay High Court in  Criminal        Appeal No. 652 of 1953 arising out of the Judgment and Order        dated  the  9th  April  1953  of  the  Court  of  Presidency        Magistrate. 19th Court, Bombay in Criminal Case No.  12164/P        of 1949.        H.J. Umrigar and R. A. Govind for the appellant.        Porus  A. Mehta and R. H. Dhebar for P. G. Gokhale  for  the        respondent.        1956.  May 4. The Judgment of the Court was delivered by        SINHA J.-This is an appeal by special leave directed against        the  concurrent  orders and judgments of  the  courts  below        convicting  the appellant, under section 409,  Indian  Penal        Code  and sentencing him to rigorous imprisonment for  three        months  and  a fine of Rs. 201 or in  default,  further  six        weeks  rigorous  imprisonment., As the  appellant  had  been



      convicted  and  sentenced for a similar offence  in  another        case  tried by the same Presidency Magistrate,  19th  Court,        Esplanade, Bombay, he directed the sentence in this case  to        run  concurrently with the sentence in the other case.   The        charge  against the accused in the, trial court is in  these        terms:-        "The  Accused  is charged under section 409  of  the  Indian        Penal  Code  for  committing criminal  breach  of  trust  in        respect  of  property to wit 3% Government  Promissory  Loan        Notes  1966-68  of the face value of Rs. 50,000  and  2-1/4%        Government  Promissory Notes 1961 of the face value  of  Rs.        25,000 in or about February to May 1949 entrusted to him  in        his capacity as Managing Director of the Exchange Bank of        486        India  and  Africa Ltd, and belonging to  the  Cambay  Hindu        Merchants Co-operative Bank.. (Detailed charge is separately        framed)".        The  appellant  at  all  material  times  was  the  Managing        Director of the Exchange Bank of India and Africa Ltd., with        its  head  office  at  Bombay,  which  hereinafter  will  be        referred  to  as  the Exchange Bank.  He  held  a  power  of        attorney  to act as the Managing Director on behalf  of  the        Directors  of  the Company.  By that power the  accused  was        invested with the authority to borrow money on behalf of the        Bank.  In 1944 the Cambay Hindu Merchants Co-operative  Bank        at Cambay, which hereinafter will be referred to as the  Co-        operative  Bank.,  had  opened a current  account  with  the        Exchange Bank.  On instructions from the Co-operative  Bank,        the Exchange Bank purchased in August 1946 securities  worth        Rs.  25,000 in its own name with money belonging to the  Co-        operative  Bank  and  the  securities  were  kept  with  the        Exchange  Bank as a cover for overdraft.  In March 1948  two        further  lots of Government security of Rs. 25,000  each  of        the  value  of Rs. 50,000 were purchased likewise  and  left        with  the Exchange Bank for the same purpose.  On  the  14th        May 1948 the two banks entered into a contract evidenced  by        three  documents  to  be  noticed  in  detail   hereinafter.        Shortly  stated, the Exchange Bank agreed to grant  the  Co-        operative  Bank  credit for overdraft up to a limit  of  Rs.        66,150  and as a security for the overdraft  the  Government        securities of the value of Rs. 75,000 already in the custody        of  the  Exchange  Bank was pledged to  the  latter.   These        securities of the face value of Rs. 75,000 will  hereinafter        be referred to as "the securities".  But it appears that the        Co-operative  Bank  had  no  occasion  to  operate  on   the        overdraft  account  until the 28th February  1949  when  the        crucial  event  happened, namely the Exchange  Bank  finding        itself in an embarrassed financial position took a loan from        the  Canara  Bank  of one lakh of  rupees  by  pledging  the        securities  as also other securities with which we  are  not        concerned in this case.  On the 24th April 1949 the Exchange        Bank paid off the dues of the        487        Canara Bank by taking a fresh loan of the same amount of one        lakh from Messrs Merwanji Dalal & Co. and pledging the  same        securities as’ had been pledged to the Canara Bank.  On  the        28th  April 1949 Messrs Merwanji Dalal & Co.  demanded  back        their  money by the forenoon of the day following.   As  the        Exchange  Bank  could not -pay the amount as  demanded,  the        pledgees  aforesaid  sold  those  securities  including  the        securities belonging to the Co-operative Bank, for realising        their dues, on the 3rd May 1949.        In  the  meantime,  -in answer to a  letter  -from  the  Co-        operative Bank to the Exchange Bank asking for a certificate        for  the  securities  held by the latter on  behalf  of  the



      former  in the overdraft account, the Exchange  Bank  issued        the certificate dated the 1st April 1949 to the effect  that        at  the  close of business on the 31st March  1949  it  held        Government  of  India securities of the total value  of  Rs.        75,000 as security against the overdraft facilities  granted        to  the  Co-operative Bank and that there was  no  overdraft        against the said securities on that date.  Subsequently,  on        the  29th  April  1949 the Co-operative Bank  wrote  to  the        Exchange  Bank asking the latter to hand over securities  of        the  face  value of’ Rs. 50,000 to the  Central  Bank.   The        Central Bank also on behalf of the Co-operative Bank made  a        similar demand and as the Exchange Bank did not comply  with        that requisition, the Central Bank informed the Co-operative        Bank by a letter dated the 3rd May 1949 that the  securities        had not been banded over to the Central Bank as directed  by        the Co-operative Bank.  The Co-operative Bank then wrote  to        the Reserve Bank for stoppage of the securities of the value        of  Rs. 25,000.  It became clear by then that  the  Exchange        Bank  was not in a position to return the securities to  the        owners, that is to say, the Co-operative Bank.        In  spite  of  the  best efforts of  the  appellant  as  the        Managing  Director  of the Exchange Bank, to stave  off  the        crisis by borrowing money from different sources, the run on        the bank became so great that the directors applied for  and        obtained from the Com-        488        pany Judge of the Bombay High Court a moratorium of 15 days.        On the 18th May 1949 a provisional liquidator was  appointed        in respect of the Exchange Bank on a creditor’s  application        and  on  the’  24th June 1949 the  Official  Liquidator  was        appointed to wind up the bank.  On the 25th June 1949 one M.        N.  Raijee  as  agent  of  the  Official  Liquidator  lodged        information  with  the police charging  the  appellant  with        breach  of  trust  in  respect of  a  number  of  securities        including  the  securities belonging.  to  the  Co-operative        Bank.  On the 31st October 1949 a charge-sheet was submitted        by  the police under section 409, Indian Penal Code  against        the appellant in respect of the securities of the face value        of Rs. 75,000 belonging to the Cooperative Bank.  On the 4th        April 1952 the charge as quoted above was framed against the        appellant.   The  delay  of about two and a  half  years  in        placing  the appellant on trial is attributable to the  fact        that  at the request of the accused the trial in respect  of        this  charge  was stayed pending the disposal of  the  other        case against him.        At the trial the prosecution examined the Manager of the Co-        operative Bank as P.W. 1. He proved the transactions between        that Bank and the Exchange Bank.  The second witness for the        prosecution  was  a partner in the firm of  Messrs  Merwanji        Bomanji  Dalal  during  the material time.   He  proved  the        transaction of the loan by his firm to the Exchange Bank  of        one lakh of rupees on the pledge of the securities belonging        to  the  Co-operative Bank, as also  other  securities.   He        deposed to the fact that it was the appellant who  finalised        the  transaction  on behalf of the Exchange Bank.   He  also        proved  that in default of payment by the Exchange  Bank  on        demand  by  his firm, it sold the securities  including  the        securities  in question and realised the dues from the  Bank        from  the  sale proceeds of securities of the value  of  one        lakh of rupees.  The third witness for the prosecution  was’        the Chief Accountant of the Exchange Bank who functioned  as        such  till the 2nd May 1949 when the Bank closed  down.   He        also  had a power of attorney from the Bank to  act  jointly        with another person        489



      with  a  similar  power  of  attorney.   According  to  this        witness,  the appellant as the Managing  Director  exercised        the powers of borrowing, raising money, -purchasing, selling        and pledging of bonds., scrips and other forms of securities        on  behalf  of  the Bank and  its  constituents  during  the        relevant  period.  and  that no  one  else  exercised  those        powers.   He  -also testified to the fact that there  was  a        crisis in the affairs -of the Bank from about the middle  of        February  1949-and that there was a rush on the  Bank  which        continued till it closed down.  He also proved the fact that        during the-material time the Co-operative Bank had a  credit        balance  in  its favour and that there was no  overdraft  by        that  Bank from the Exchange Bank.  He proved Exhibits E,  F        and  G  which  are the  documents  evidencing  the  contract        between  the  two  banks in respect of  the  pledge  of  the        security.  He corroborated the previous witness that it  was        the  appellant who negotiated and finalised the loan of  one        lakh of rupees from the Canara Bank and that the  securities        in question along with others had been pledged to the Canara        Bank.   It  was he who had endorsed the  securities  to  the        Canara Bank.  He stated that the Exchange Bank had submitted        to the Canara Bank a declaration to the effect that the said        securities  belonged  absolutely to the Exchange  Bank.   As        there  was a heavy rush of depositors on the  bank,the  loan        from the Canara Bank was taken to satisfy the demand of  the        depositors.   The most important witness examined on  behalf        of  the prosecution is P.W. 4, Ganpati Venkatrao  Kini.   He        was  an accountant in the Exchange Bank during the  relevant        period.  He was also working with the Official Liquidator of        the  Bank after its liquidation was ordered by court.   Like        the previous witness, he also had a power of attorney to act        only  in conjunction with another per-son holding a  similar        power.  He supports the previous witness in saying that  the        power  of  borrowing  money or  of  purchasing,  selling  or        pledging  or  repledging  securities was  exercised  by  the        appellant and by no other person on all material dates.   He        also corroborates the previous witness and’ states that        490        there  was  a crisis in the bank from about  the  middle  of        February  1949 and that there was a heavy rush on  the  bank        from that time till it closed down.  He also proves Exs.  E,        F  and G and states that from the 14th May 1948  when  these        documents  were executed between the two banks till the  2nd        May  1949 when the Exchange Bank closed its doors there  was        no  overdraft  by the Co-operative Bank which always  had  a        credit   balance.   He  also  gives  the  -details  of   the        transaction  of  the loan of one lakh between  the  Exchange        Bank  and the Canara Bank and the details of the  securities        pledged  by  way of security for that loan.   He  makes  the        following very significant statement:-        "I  had  handed  over the two securities  belonging  to  the        Cambay  Co-operative  Bank to the accused for  being  handed        over  to  the  Canara Bank against the  loan.   The  accused        actually asked me for these securities and I handed them  to        the accused".        To  a  court question as to why he did not bring it  to  the        notice  of  the appellant that the  securities  in  question        belonged  to the Co-operative Bank and not to  the  Exchange        Bank, his answer is in these words.--        "In  fact, the accused himself told me to  bring  securities        pleged  by the Cambay Co-operative Bank with  the  Exchanage        Bank".        He also proves Ex. L, which is a very important document  in        this  case and proves that it was signed by the accused.  He        further  states that the declaration in that  document  that



      the   securities   rep  I  resented  the   Exchange   Bank’s        investments  was  not  correct.   He  also  makes   detailed        statements  as to the different kinds of interest which  the        appellant  had  in the Exchange Bank.  He  was  drawing  Rs.        2,500  as monthly salary as the Managing Director.   He  was        also  drawing  a  salary of Rs. 1,000 from  the  Union  Life        Assurance Co. Ltd., is its Managing Director.  The Insurance        Company  and  its branches had a current  account  with  the        Exchange  Bank and had advanced to the latter six  to  seven        lakhs of rupees as "call deposits".  The appellant was  also        connected with Messrs L. A,        491        Stronach  Ltd.,  Advertising Agents, which  had  been  given        overdraft  facilities by the Exchange Bank.   The  appellant        was  also  getting Rs. 2,000 per month as  salary  from  the        aforesaid  Advertising Agents.  The appellant and  his  wife        were the principal shareholders in Akhaney & Sons Ltd.,  who        were  the Secretaries and Treasurers of the Indian  Overseas        Airlines.   The Exchange Bank had advanced to the  aforesaid        Indian  Overseas Airlines a loan of one crore and ten  lakhs        of  rupees  and Messrs Akhaney & Sons  Ltd.  aforesaid  were        getting  a  remuneration  of Rs. 2,500 per  month  from  the        Indian Overseas Airlines Ltd.  It would thus appear that the        appellant  along  with his wife in one way  or  another  was        getting about Rs. 8,000 per mensem as remuneration from  the        different  companies  referred to above which  were  closely        associated with one another from the financial point of view        and that the, appellant was the chief person concerned  with        them and the connecting link between them.  It was naturally        his  interest  to see that the Exchange Bank  continued  its        existence  as  long as could be arranged even  by  borrowing        large  sums  of money when there was already a  run  on  the        bank.   It  is  in the background of  all  these  facts  and        circumstances  that  the appellant’sacts of  commission  and        omission had to be judged. The other four witnesses, P.Ws. 5        to  8  are more or less formal witnesses in the  sense  that        they  have proved certain documents and letters  which  need        not be noticed.  The evidence of P.W. 2 had to be set  aside        as he was not available for cross-examination after  charge,        being out of the country.        The  appellant’s  defence  is disclosed in  a  long  written        statement  running into twenty paragraphs and seven  closely        typed  pages  submitted on the 3rd  October  1952.   Shortly        stated,  it is to the effect that the charge framed  against        him is bad in law and extremely vague; that the vagueness of        the charge had "considerably handicapped" his defence,  that        the  prosecution had not been fair in that it had  not  exa-        mined the first informant, M. N. Raiji, that if he had  been        examined ’by the prosecution, the appellant would have shown        from the records in his possession        64        492        that  the  Co-operative Bank had not suffered any  loss  and        that  the Bank in the hands of the Liquidator had more  than        sufficient  funds  to pay the dues of the former;  that  the        prosecution  bad not been launched with the sanction of  the        Company   Judge  who  was  in  seisin  of  the   liquidation        proceedings  in  respect  of  the  Exchange  Bank  and  that        therefore  the  provisions of sections 179 and  237  of  the        Indian  Companies Act had not been complied with;  that  the        securities  in  question  had  not  been  entrusted  to  the        appellant but to the Exchange Bank,’ if at all there was any        entrustment,  and that as a matter of fact and law, the  Ex-        change Bank had not been entrusted with the securities, that        the Exchange Bank "Court legally deal with the securities in



      any manner it liked", as provided in the documents, Exs.  E,        F and G, between the two banks; that the sub-pledging of the        securities  with  the Canara Bank or  with  Messrs  Merwanji        Bomanji Dalal was "perfectly. within the four corners of the        law", and that the essential ingredients of an offence under        section  409,  Indian  Penal Code had  not  been  made  out.        Grievance  was  also  sought to be made  of  the  fact  that        Inspector Milburn who had investigated the case had not been        called  as a. prosecution witness, with the result that  the        appellant had been deprived of the right of challenging  the        prosecution evidence with reference to the police diary.        The   learned  Magistrate  after  a  very  fair   and   full        examination  of  the  evidence in the case  and  the  points        raised  by  the  appellant  in  his  defence  came  to   the        conclusion  that the appellant was guilty of the offence  of        criminal  breach  of trust under section 409,  Indian  Penal        Code  and  passed a lenient sentence, as stated  above,  *in        view  of  the,  consideration that "not a pie  went  to  the        pocket of the accused", and that "the accused had not  taken        up any dishonest defence".  The learned Magistrate held that        the charge as framed was not vague in view of the provisions        of  section  222,  Criminal  Procedure  Code,  with  special        reference  to the terms of sub-section (2) of that  section.        On  the  question  of  the  non-examination  of  the   first        informant, M.  N.  Raiji,  and of the  investigating  police        officer,        493        the  learned  Magistrate  observed  that  they  were  formal        witnesses  inasmuch  as the facts of the case  were  not  in        dispute.   Furthermore,  the  court  observed  that  if  the        accused or his lawyer who defended him at the later stage of        the  prosecution, had applied to the’ court for their  being        examined,  they  could  have been called  as  witnesses  and        subjected to cross-examination by the accused.  But no such,        application  had been made.  As regards want of sanction  of        the  Company Judge, he held that section 179 of  the  lndian        Companies Act had no application to the facts of the present        case,  as it was not a prosecution under the  Companies  Act        and  that therefore no such sanction as is  contemplated  by        that  section was necessary.  Dealing with  the  appellant’s        contention that there was no entrustment within the  meaning        of  section  405, Indian Penal Code the  learned  Magistrate        observed  that  the accused held delegated powers  from  the        Board  of  Directors and he held the property  in  trust  on        behalf  of the Directors of the Exchange Bank.   He  further        held  that  the contract of pledge dated the 14th  May  1948        between the two banks did not vest any right in the Exchange        Bank absolutely to deal with the securities and that at  any        rate,  the Exchange Bank could not deal with the  securities        so  long as the Cooperative Bank had not taken an  overdraft        from  the former.  In dealing with the question whether  the        appellant had dealt with the securities dishonestly, he held        that in all the circumstances of the case there was no doubt        that  wrongful loss was caused to the Co-operative Bank  and        wrongful  gain  not  to the accused personally  but  to  the        Exchange  Bank which he represented during the  transactions        in question.        On appeal to the Bombay High Court, a Division Bench of that        court dismissed the appeal. substantially agreeing with  the        findings  of  the  trial court.  Dealing with  a  new  point        raised  before the appeal court, namely, that the  appellant        was under a mistake of fact or law as to the indebtedness of        the  Cooperative  Bank  to the Exchange Bank or  as  to  its        powers to deal with the security, the High Court held        494



      that  there was no possibility of the appellant having  made        any  mistake of fact in good faith.  The court also  pointed        out  that the appellant himself had not raised this plea  of        mistake  either  about the facts of the case  or  about  any        doubtful  question of law.  The court also pointed  out  the        declarations made by the appellant on behalf of the Exchange        Bank that the securities belonged absolutely to the bank and        represented  its investments-statements which he  knew  were        false.   While  dealing with the appeal on the  question  of        sentence,  the  High Court pointed out that there  was  good        evidence  to  support the inference that the  appellant  had        been actuated by motives of personal benefit also.  In  that        view of the matter the High Court maintained the  conviction        and  the  sentence  passed by  the  trial  Magistrate.   The        appellant  then moved the High Court for a certificate  that        the  case was a fit one for appeal to this Court.  The  cer-        tificate  was  refused  by  that  court.   Thereafter   the.        appellant  moved  this Court and obtained special  leave  to        appeal.        In  support  of  the  appeal the  learned  counsel  for  the        appellant has raised a number of questions of law and at the        forefront of his argument contended that both in law and  on        a proper construction of the contract between the two  banks        the appellant was fully entitled to pledge the securities as        long  as the overdraft agreement subsisted, irrespective  of        whether  or  not there was an actual overdraft  by  the  Co-        operative Bank on the date of the pledge, that is to say, on        the 28th February 1949.        Examining  the  position  with  reference  to  the  contract        between the two banks, we find that Exhibits E, F and G, all        dated  the 14th May 1948, are parts of the same  transaction        and evidence the terms of the contract between them.  Ex.  E        is  a promissory note executed by the Co-operative  Bank  in        favour  of the Exchange Bank for the sum of Rs. 66,150  with        interest  at  three  per cent. per annum  with  half  yearly        rests.  Ex.  F is a letter addressed by the Cooperative Bank        to  the  Exchange Bank enclosing Ex.  E, and Ex.  G  is  the        bond pledging all marketable        495        securities  and goods to the Exchange Bank in  consideration        of its promise to grant credit for overdraft limited to  the        amount aforesaid in favour of the Cooperative Bank from time        to  time  with  interest at three per  cent.  per  annum  as        aforesaid.  The significant portion of the bond is in  these        terms:-        "........................... and we agree and undertake that        in  the event of our failure to maintain the margin  on  the        said movable property marketable securities and goods in the        manner  hereinafter provided or failing repayment on  demand        to  you by us of the amount of such advance or  credit  with        interest cost charges and expenses as aforesaid you shall be        entitled, but not bound, to sell or otherwise dispose of all        or  any of the said movable property  marketable  securities        and  goods  by public auction or private  contract  in  such        manner and upon such terms and subject to such conditions as        you  may think fit without any reference to us or  obtaining        our consent, and the proceeds of such sale or disposal shall        be  applied  first  in  payment of  all  costs  charges  and        expenses  of and incident to such sale or disposal  and  the        enforcement of the -pledge and charge in your favour  hereby        created, secondly in repaying the amount of such advance  or        credit with interest as aforesaid and all costs charges  and        expenses incurred -by you in relation thereto not  otherwise        met including loss in exchange (if any) and all other  debts        and monies however due to you by us and lastly in payment to



      us of the surplus if any thereafter remaining, declaring  as        it  is  hereby expressly provided agreed and  declared  that        this shall be continuing security to cover the amount of any        advance  or credit which you have allowed to us Or may  from        time  to  time  allow us with interest  costs,  charges  and        expenses   and   all   other  debts  and   monies   due   as        aforesaid................. "        Reading  Exhibits E, F and G together, it is clear that  the        securities  of the face value of Rs. 75,000 were pledged  to        the Exchange Bank as security for overdraft up to the  limit        of  Rs. 66,150 for which the Cooperative Bank had given  the        promissory  note  to  the Exchange  Bank.   It  was  further        stipulated that in        496        the  event  of the pledgor making a default  in  payment  on        demand  of  the  amount advanced by way  of  overdraft  with        outstanding interest it may be realised by the Exchange Bank        by  sale  of  those securities  and  after  -satisfying  the        pledgee’s  dues  against  the pledgor,  if  there  -was  any        outstanding amount the surplus of the sale proceeds shall be        paid  back to the pledgor.  Thus it is clear that  according        to  the  terms  of the contract the Exchange  Bank  was  not        entitled,  as contended on behalf of the appellant, to  sell        the  securities  even  though there may not  have  been  any        outstanding dues from the Co-operative Bank.  The securities        were  to  be  kept by the Exchange  Bank  charged  with  the        payment  of such amount as may from time to time  have  been        advanced  or  be advanced under the  overdraft  arrangement.        But that charge was not an absolute one without reference to        the state of accounts between the two banks; in other words,        there  would  be  a charge only when there  was  an  adverse        balance against the Co-operative Bank.  We know that at  all        material  times the Co-operative Bank had not drawn any  sum        from  the  Exchange  Bank  in  pursuance  of  the  agreement        referred  to above.  The right of the Exchange Bank to  deal        with the securities under the agreement would arise only  on        the  happening of certain events, namely, that  the  pledgor        either had failed to maintain the proper margin or had  made        a  default in repayment of the outstanding amount on  demand        by  the Exchange Bank.  So long as those  contingencies  did        not  arise,-and  it  is  nobody’s case  that  any  of  those        contingencies had arisen,--the pledgee bank had no right  to        deal  with  the securities by way of pledge,  sub-pledge  or        assignment.  In this connection our attention was invited to        the provisions of section 179 of the Indian Contract Act  in        support  of the contention that as the securities  had  been        agreed between the two banks to be a cover for overdraft not        exceeding Rs. 66,150, up to that amount the pledgee bank bad        an  interest in those securities which it could  have  dealt        with.   It was further argued that as there was  nothing  to        show that the appellant had dealt with the securities for        497        a  larger  amount than that, he could not be  said  to  have        contravened  the  terms of the contract.   In  our  opinion,        there  is  no  substance in-this  contention.   Section  179        predicates that the pledgor has a limited interest which  he        can  deal with and his transaction to that extent  would  be        valid.   If  the Co-operative Bank had as a matter  of  fact        operated  upon the overdraft account and bad drawn  any  sum        with in the limit aforesaid, the Exchange Bank would have an        interest  pro tanto in those securities and might then  have        been entitled to pledge or sub-pledge the securities with  a        third  party.  But so long as there was no overdraft by  the        pledgor, the pledgee bad no such interest as it could in-its        turn pledge or sub-pledge to a third party.  Furthermore, it



      is  clear from the narrative of events given above that  the        appellant  dealt with the securities with third  parties  on        the  footing, after an express declaration had been made  by        him, that those securities were the absolute property of the        Exchange Bank.  We are not here concerned with -the question        of the extent of interest acquired by such third party.   We        are  only concerned with determining the legal  position  as        between the two banks the Exchange Bank being represented by        its  Managing  Director, the appellant.  Hence there  is  no        difficulty  in  holding that on the terms  of  the  contract        between  the  two banks the appellant was  not  entitled  to        transfer  any interest in those securities and if be did  so        he did it in contravention of the terms -of the contract.        We  will  now deal with the legal position, apart  from  the        terms  of  the  contract.  On the  facts  stated  above  the        Exchange  Bank  had  become the bailee  in  respect  of  the        securities.   The securities had been delivered by  the  Co-        operative Bank to the Exchange Bank for the express purpose,        as disclosed in the contract set out above, that they  shall        be  disposed of in ,accordance with the terms  contained  in        Exhibit  G set out above.  By the very fact of the  delivery        of the securities to the bailee the latter became a  trustee        in terms of the contract, not for all purposes, but only for        the, limited purpose indicated by the agreement        498        between  the parties.  The pledgor has in the  present  case        only  transferred  his  possession of the  property  to  the        pledgee  who  has  a special interest  in  the  property  of        enforcing  his charge for payment of an overdraft,  if  any,        whereas  the property continues to be owned by the  pledgor.        The special interest of the pledgee comes to an end as  soon        as  the debt for which it was pledged is discharged.  It  is        open to the pledgor to redeem the pledge by full payment  of        the  amount for which -the pledge had been made at any  time        if  there is no fixed period for redemption, or at any  time        after  the  date  fixed  and  such  a  right  of  redemption        continues  until the thing pledged is lawfully sold.   Hence        the  Co-operative Bank in this case could have asked  for  a        return  of the securities at any time, because  there  never        was  any  overdraft.   As the  pledge  had  been  terminated        neither  by  redemption,,  nor  by  a  lawful  sale  on  the        happening of such contingencies as the parties  contemplated        in  their  agreement  or the  law  allowed,  the  securities        continued  to be the property of the Co-operative  Bank  and        the  Exchange  Bank,  or  the  appellant  as  its   Managing        Director., bad no right to deal with them.        It was next contended, alternatively, that assuming that the        Exchange Bank had dealt with the securities in contravention        of  the  terms  of  the agreement,  the  appellant  had,  as        representing the bank, only committed a breach of  contract,        the  remedy  for  which was a suit for  damages  and  not  a        criminal  prosecution.  This argument assumes that the  same        set of facts cannot give rise both to a civil liability  and        a  criminal  prosecution.   It  is  manifest  that  such  an        argument in its bald form cannot be acceptable.  If there is        no  mens  rea, or if the other essential ingredients  of  an        offence  are  lacking,  the same facts  may  not  sustain  a        criminal  prosecution,  though a civil action may  lie.   We        have therefore to examine whether or not there was mens  rea        in this case or whether the necessary element of a criminal.        offence have been made out.        It  has  been contended that no offence under  section  409,        Indian Penal Code has been brought home to the appellant for        the reasons, (1) that there        499



      was no entrustment, (2) that there was no mens rea, and  (3)        that  there was no dishonesty on the part of the  appellant.        For  an  offence under section 409, Indian Penal  Code,  the        first  essential  ingredient  to  be  proved  is  that.  the        property  was  entrusted.  It has been argued that  in  this        case  there  was no such entrustment as is  contemplated  by        that section; and that the securities were pledged with  the        Exchange  Bank  by -the Co-operative Bank which was  in  the        position of a debtor to the former.  ’The contention is that        the  parties never contemplated the creation of a  trust  in        the  strict sense of the term.  But when section  405  which        defines "criminal breach of trust" speaks of a person  being        in   any  manner  entrusted  with  property,  it  does   not        contemplate   the  creation  of  a  trust-  with   all   the        technicalities  of  the law of trust.  It  contemplates  the        creation  of  a relationship whereby the owner  of  property        makes it over to another person to be retained by him  until        a certain contingency arises or to be disposed of by him  on        the   happening  of  a  certain  event.   The   person   who        transfers,,  possession of the property to the second  party        still remains the legal owner of the property and the person        in  whose favour possession is so transferred has  only  the        custody of the property to be kept or disposed of by him for        the  benefit  of  the  other party, the  person  so  put  in        possession  only  obtaining a special interest by way  of  a        claim  for money advanced or spent upon the safe keeping  of        the thing or such other incidental expenses as may have been        incurred by him.  In the present case the Co-operative  Bank        entrusted  the  Exchange Bank with the  securities  for  the        purpose of keeping them as a security for the overdrafts  if        and  when  taken  by the former.  In  law  those  securities        continued to be the property of the Co-operative Bank and as        it  never  borrowed any money from the  Exchange  Bank,  the        latter  had no interest in those,securities which  it  could        transfer in any way to a third party so far as the two banks        are  concerned.   The entrustment was to the  Exchange  Bank        itself  But it being a non-natural person, its business  had        to be transacted by someone who was authorised        500        to  do  so  on its behalf The appellant held  the  power  of        attorney on behalf of the directors of the bank to  transact        business  on  behalf  of the bank.   In  that  capacity  the        appellant  had-dominion  over  the  securities.   Hence  the        appellant can be said either to have been entrusted with the        property in a derivative ’sense or to have dominion over the        securities as a banker-, and thus in either case, the  first        essential  condition  for the application  of  section  409,        Indian Penal Code is fulfilled.        On the question of mens rea, it has to be determined whether        or   not  the  appellant  dishonestly  disposed   of   those        securities in violation of any of the terms of the agreement        aforesaid.  As already indicated, the appellant did  dispose        of  these  securities  in  violation of  the  terms  of  the        contract  between  the two banks.  But  still  the  question        remains  whether  he  did so dishonestly;  in  other  words,        whether when disposing of those securities the appellant had        the intention of causing wrongful gain to the Exchange  Bank        or wrongful loss to the Co-operative Bank.  In our  opinion,        he  intended  both  and, as. a matter  of  fact,  he  caused        wrongful  loss to the pledgor bank and wrongful gain to  the        pledgee  bank.   ’The Exchange Bank raised  money  on  those        securities  which  it  was not entitled to do  and  the  Co-        operative Bank was deprived of those securities, even though        not  for  all times.  It is settled law that  a  deprivation        even  for  a,  short period is within  the  meaning  of  the



      expression.   If  he disposed of those securities  with  the        intention  of causing wrongful loss to the one and  wrongful        gain to the other, there can be no question but that the ap-        pellant had the necessary mens rea.        It   was  next  argued  that-assuming  that  the   essential        ingredients  of an offence under section 409,  Indian  Penal        Code  had  been  made out, the appellant  may  have  made  a        mistake  of fact in assuming that the Co-operative Bank  was        indebted to the Exchange Bank or may have made a mistake  of        law  in mistakenly believing that the Exchange Bank had  the        right  as  the pledgee to sub-pledge  those  securities  for        raising money for its own purposes.  We know as a fact that        501        the  Co-operative Bank had not taken any overdraft from  the        Exchange  Bank.   But  it was argued that it  had  not  been        proved that the appellant had that knowledge.  The appellant        in his long written statement has not tried to take  shelter        behind any such mistake.  He was in full control of the bank        accounts  and  as  pointed out by the courts  below,  it  is        impossible to believe that in the circumstances in which the        bank had found itself and when the appellant was hard put to        it  to  collect all the bank’s resources to  stave  off  the        severe  crisis through which it was passing,  the  appellant        would not have known the fact that the Co-operative Bank did        not  owe his bank any money by way of overdraft.  Hence,  in        our  opinion, there is no room for the supposition that  the        appellant  was not aware of the true state of accounts  bet-        ween  the  two  banks.   But then it  was  argued  that  the        appellant may have made a mistake of law in thinking that he        was justified by law in dealing with those securities.   The        attempt  is  to  bring the case within one  of  the  general        exceptions contained in Chapter IV of the Indian Penal  Code        and set out in section 79 in these terms--        "Nothing  is an offence which is done by any person  who  is        justified by law, or who by reason of a mistake of fact  and        not  by reason of a mistake of law in good  faith,  believes        himself to be justified by law, in doing it".        In  considering  a matter of this-kind the attitude  of  the        accused  is an important consideration.  We note  that  here        the  appellant made no attempt in the trial court to set  up        such a defence.  If he had ever said that he made a  mistake        of fact after exercising due care and caution that there was        an overdraft against the Co-operative Bank in favour of  the        Exchange  Bank, he may have been able to take  advantage  of        the exception.  But as in this case there was no mistake  of        fact  and  as the court was in a position to find  that  the        appellant must have known that there was no such  overdraft,        there  is no room for the application of section  79  quoted        above.  The appellant cannot avail himself of the  exception        of section 79 simply by        502        saying that he believed that in law he was entitled to  deal        with the securities as the property of the Exchange Bank, as        he  attempted  to do in his written statement.   If  he  had        further  proved that he believed in good faith that the  Co-        operative Bank was indebted to his bank, his belief that  he        was  justified by law in dealing with the securities as  the        property of the bank may have helped to bring him within the        exception.   But  as there was no mistake  about  the  basic        fact,  the provisions of section 79, Indian Penal  Code  are        not attracted to this case.        It  now remains to deal with certain objections relating  to        the illegality or irregularity in the procedure followed  in        the trial of this case.  It was argued that this prosecution        was  incompetent  for  the reason that no  sanction  of  the



      Company  Judge  had been obtained under section 179  of  the        Indian  Companies Act.  The relevant portion of section  179        is as follows:-        "The official liquidator shall have power, with the sanction        of the Court to do the following things:-        (a)  to institute or defend any suit or prosecution, or  other        legal proceeding, civil or criminal, in the name  and     on        behalf of the company;...................."        In  terms the section lays down the powers of  the  official        liquidator.   Such  a liquidator has to function  under  the        directions   of  the  court  which  is  in  charge  of   the        liquidation proceedings.  One of his, powers is to institute        prosecutions in the name and on behalf of the company  under        liquidation  with the sanction of the court.   This  section        does not purport to impose any limitations on the powers  of        a  criminal  court  to  entertain  a  criminal   prosecution        launched in the ordinary course under the provisions of  the        Code  of Criminal Procedure.  Where a prosecution has to  be        launched  in the name of, or on behalf of, the  company,  it        naturally becomes the concern of the Judge to see whether or        not  it  was worthwhile to incur expenses on behalf  of  the        company and therefore, the section requires the sanction  of        the   Judge  before  -the  liquidator  can   undertake   the        prosecution  or defence in the name of and on behalf of  the        company.  The        503        present  case is not a prosecution in the name or on  behalf        of the company; nor is the official liquidator interested in        prosecuting  the  case.  The prosecution was  started  on  a        charge-sheet  submitted  by  the police,  though  the  first        information report had been lodged by an official under  the        official  liquidator.  This was not a prosecution  initiated        or  instituted  by the official liquidator.  This is  not  a        case  which  can come even by analogy within the  rule  laid        down by the Federal Court in the case of Basdeo Agarwalla v.        King-Emperor(1),  that  a prosecution launched  without  the        previous  sanction of the Government within the  meaning  of        clause  16 of the Drugs Control Order, 1943, was  completely        null and void.  In that case their Lordships of the  Federal        Court  had to consider the effect of the following words  of        clause 16 aforesaid:        "No prosecution for any contravention of  the provisions  of        this Order shall be instituted without the previous sanction        of the Provincial Government.......".        It  will  be noticed that section 179 of the  Companies  Act        does not contain any words similar in effect to those quoted        above.  Where the legislature intended to place a limitation        on the powers of the court to -take cognisance of an offence        unless   certain   conditions  were  fulfilled,   like   the        provisions of sections 196 and 197, Criminal Procedure Code,        it  has  used  words such as these:  "No  court  shall  take        cognisance There is nothing in section 179 of the  Companies        Act which can be construed as restricting the powers of  the        court to take cognisance of an offence or the powers of  the        police  to  initiate  prosecution or  even    of  a  private        citizen  to  move the machinery of the  criminal  courts  to        bring  an  offender like the appellant to  justice.   For  a        prosecution  for  breach of trust even by a  director  of  a        company no such condition precedent as the previous sanction        of  any  authority is contemplated by law, unless  it  is  a        prosecution in the name and on behalf of the company by  the        official  liquidator  who has to incur expenses out  of  the        funds of the company.  Section 179 is an        (1)  [1945] F.C.R. 93.        504



      enabling  provision to enable the liquidator to  do  certain        things  with  the  sanction of the  court.    It   does  not        control the general law of the land.        It was next contended that the charge as framed by the trial        court  was  illegal  and  vague  and  had  caused   material        prejudice  to  the  appellant.  The  charge  as  framed  has        already  been  set out.  The learned  trial  magistrate  had        stated  at  the  end  that  a  detailed  charge  was  to  be        separately framed.  But no such charge is before us and  the        appeal has proceeded on the assumption that no such detailed        charge  was as a matter of fact framed by the  trial  court.        The question therefore is whether the charge, such as it is,        complies  with  the requirements of the law.   It  has  been        argued  on  behalf  of  the appellant  that  the  charge  is        materially  defective in so far as the nature of the  breach        of trust, the facts constituting the breach, the exact  date        and manner of the breach have not been set out.  The  charge        as framed fulfils the requirements of section 221,  Criminal        Procedure  Code,  because it has mentioned the name  of  the        offence,  namely,  criminal breach of  trust  and  specified        section 409, Indian Penal Code, which impliedly gives notice        to  the accused of every legal condition required by law  to        be fulfilled in order to constitute the offence of  criminal        breach of trust.  It has also fulfilled the requirements  of        section 222(1) of the Code in so far as it has specified the        securities  in  respect of which and the  Co-operative  Bank        against which a criminal breach of trust had been committed.        Those  particulars, in our opinion, were sufficient to  give        the accused notice of the     matter   with  which  he   was        charged.  The trial court has made    reference    to    the        provisions of sub-section (2) of section 222.  But it was in        error  in relying upon those provisions which relate to  the        offence   of   criminal  breach  of   trust   or   dishonest        misappropriation  of money, which was not the present  case.        It is true that the manner of the commission of the  offence        as required by section 223 of the Code has not been set out.        But that has to be set out only when the nature of the  case        is  such that the particulars required by sections  221  and        222 had not given the accused suffi-        505        cient notice of the matter with which he is charged.  In our        opinion, though the charge could have been more detailed  as        was intended by the learned Magistrate, as framed, it  gives        the  accused sufficient notice of the nature of the  offence        alleged against him.  Even assuming that there were  certain        omissions in the charge, they cannot be regarded as material        unless  in terms of section 225 of the Code it is  shown  by        the accused that he had in fact been misled by such omission        or  that there had been a failure of justice as a result  of        such  error  or  omission.  ’The  illustrations  under  that        section show that each case has got to be judged on its  own        particular facts and there cannot be any general presumption        that  every  error or omission in a  charge  has  materially        affected  a  trial or occasioned a failure of  justice.   In        this case from the long written statement filed on behalf of        the appellant it is clear that he was aware of the  gravamen        of  the charge against him and that he tried to meet  it  in        all  its bearings.  We are not therefore impressed  by,  the        argument  advanced on his behalf that the omissions  in  the        charge  are material and that the case should be tried  over        again  on  a fresh charge.  The learned Judges of  the  High        Court constituting the Division Bench which heard the appeal        have written separate but concurring judgments, but they did        not notice any argument, having been advanced before them on        the  question  of  the illegality  or  irregularity  in  the



      charge.   That  also would show that the appellant  did  not        make  it  a  grievance at the time of the  argument  of  the        appeal, though a ground had been taken in the memorandum  of        appeal that the charge as framed was vague and defective and        as  such bad in law.  In our opinion, this is not a case  in        which  it  can be said that the omission in the  charge  has        materially affected the trial of the case or prejudiced  the        appellant  in  his defence or has occasioned  a  failure  of        justice.        As all the grounds raised in support of the appeal fail,  it        is accordingly dismissed.        506