11 December 1964
Supreme Court


Case number: Appeal (crl.) 43 of 1963






DATE OF JUDGMENT: 11/12/1964


CITATION:  1965 AIR 1433            1965 SCR  (2) 429  CITATOR INFO :  F          1967 SC1342  (4)  RF         1968 SC 700  (8)  R          1985 SC 628  (24,46,72,76)

ACT: Indian  Penal Code, 1860 (Act 45 of 1860), ss. 403 and  409- Partner-Failure  to account for monies of firm-lf guilty  of criminal  breach of trust or dishonest  misappropriation  of property.

HEADNOTE: The  appellant  was the working partner in a firm.   It  was agreed  among the partners that he should carry on the  work of  recovery  of  the  dues  of  the  partnership.   On  the allegation  that  he misappropriated certain sums  and  also failed  to  deposit  in  bank some  collections  as  he  was required to do, he was convicted for the offence of criminal breach of trust under s. 409, Indian Penal Code.  In  appeal to  the Supreme Court it was contended that as  he  realised the  sums in his capacity as partner and utilised  them  for the  business  of  the partnership, he was  only  liable  to render  accounts  to his partners and his failure to  do  so would not amount to criminal breach of trust. HELD  : The appellant could not be said to have been  guilty of criminal breach of trust, Though as a partner he had dominion over the property of the partnership for the purpose of criminal breach of trust  the mere  existence of such dominion is not enough.  It must  be further   shown  that  his  dominion  was  the   result   of entrustment,  that is, the prosecution must  establish  that the dominion over the partnership assets was, by a  specific agreement, entrusted to the accused. [432 E-G] Bhuban  Mohan Rana v. Surendra Mohan Das, I.L.R.  (1952)  2. Cal. 23(F.B.) approved. Even if there was a mandate to the appellant with respect to some  dues to collect and deposit in bank, faliure to do  so would not constitute the offence, as he was also  authorised by the other partners to spend the money for the business of the partnership. [434 D-E] The  appellant  would  not  also  be  guilty  of   dishonest misappropriation  of  property  under s. 403  of  the  code, because,  he  had undefined ownership along with  the  other



partners over all the assets of the partnership and as  such owner, in whichever way, and with whatever intention he used the  property, he would not be liable for  misappropriation. [434 H]

JUDGMENT: CRIMINAL APPELLATE, JURISDICTION : Criminal Appeal No. 43 of 1963. Appeal  by special leave from the judgment and  order  dated February 1, 1963 of the Bombay High Court in Criminal Appeal No. 972 of 1962. O.P. Rana, for the appellant. P.   K.   Chatterjee  and  B.  R.  G.  K.  Achar,  for   the respondent. 430 The Judgment of the Court was delivered by Mudholkar J. In this appeal from the judgment of the  Bombay High  Court  the question which falls to  be  considered  is whether  a  partner can be convicted under  s.  409,  Indian Penal  Code  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. The admitted facts are briefly these The  firm, Messrs.  Bharat Silp Pramandal, which was  formed for  carrying  on  the business  of  building  construction, originally conisted of eight partners and the appellant  was its working partner.  This firm was constituted in the  year 1954.  But on February 6, 1957 three of the partners retired and  the  business  was  continued  by  the  remaining  five partners.  Disputes arose amongst them, which were  referred to arbitration of Mr. J. T. Desai, a Solicitor.  Apparently, in  pursuance  of his award a fresh agreement (Ex.   N)  was entered into by the partners on June 4, 1958.  By virtue  of this agreement the appellant’s share in the firm’s  business was to be of 50 nP. in a rupee while the other partners  had different  shares in the remaining 50 nP.   Nagindas  Jivraj Mehta,  who is the complainant in this case had a  share  to the  extent  of  6 nP.  Under  this  agreement  the  parties decided  not to undertake new work.  The agreement  required the  appellant to complete all the accounts  and  prohibited from  borrowing money in the name of the firm.  It  required him  "to use his best efforts to realise all pending  bills, security deposits, claims etc." as well as to dispose of the plant,  machinery  etc.  The agreement  also  provided  that partners,  other than the appellant, would procure,  if  the need  arose,  further finance to the maximum  limit  of  Rs. 25,000/-  but  that if a sum in excess of  this  amount  was required,  that  excess  was to be brought  in  by  all  the partners  including the appellant "individually pro rata  in proportion  to  their shares of profits and  losses  in  the firm".   Clause 8 of this agreement permitted the  appellant to  withdraw  on  his own account a sum of  Rs.  10,000  "no sooner  he is able to realise any of the pending  claims  of bills of the firm or security deposits".  We have dealt with this agreement at some length because it will be relevant to consider these matters in the context of the argument of Mr. Rana to the effect that the appellant as working partner was entitled  to  utilise  the  realizations  made  by  him  for carrying on the work of the firm. 431 According  to the complainant the appellant  committed  mis- appropriation  to the tune of Rs. 8,905/- consisting of  the follow-ing six items



    Rs. 2,871/-          3,000/-          1,100/-          1,100/-            750/-             84/- TOTAL     8,905/- The trial court acquitted the appellant with respect to  the last  two  items but convicted him in respect of  the  first four items. The  appellant admits that he realised these four items  but he  says  that he did so in his capacity as partner  and  he utilised   them  for  the  business  of   the   partnership. Therefore,  according  to him, he is only liable  to  render accounts to his partners and cannot in any circumstances  be said to be guilty of an offence under S. 409, I.P.C. He also points  out that the complainant has instituted a  suit  for the  dissolution  of the partnership and  for  rendition  of accounts and that he instituted the present complaint solely with the idea of making it difficult, if not impossible, for the appellant to defend the civil suit properly. On behalf of the appellant it is contended that even if  the prosecution  had  succeeded in showing that the  four  items referred to above were realised by the appellant and that he has  not accounted for them properly he will not  be  liable for  criminal breach of trust under s. 409, I.P.C. but  that his  liability would be only of a civil nature.  In  support of this contention reliance is placed upon Bhuban Mohan Rana v. Surendra Mohan Das(1).  There the following question  was referred for decision by the Full Bench               "Can a charge under s. 406 of the Indian Penal               Code   be  framed  against  a   person,   who,               according  to  the complainant, is  a  partner               with  him  and is accused of  the  offence  in               respect of property belonging to both of  them               as partners ?" All the five Judges constituting the Full Bench answered the question  in  the negative.  In the leading  judgment  which was, (1)  1. L. R. (1952) II Cal. 23. 432 delivered  by  Harris  C.J.,  he  pointed  out  that  before criminal  breach of trust is established it must  be,  shown that the person charged has been entrusted with property  or with dominion over property and that a partner does not,  in the ordinary course, hold property in a fiduciary  capacity. The learned Chief Justice further pointed out that there  is really no distinct or defined share of a partner in any item belonging  to the partnership.  Upon the dissolution of  the partnership  and after an account is taken it may  turn  out that a partner who retains an asset is entitled to the whole of  the  asset and may be, much more.  He  referred  to  the English view that a partner does not hold money belonging to the  partnership in a fiduciary capacity and said that  this view  appeared  to  him to be  correct.   Referring  to  the decision  in  The Queen v. Okhoy Coomar Shaw(1) in  which  a Full   Bench  had  held  that  a  partner  who   dishonestly misappropriates  or  converts  to his own  use  any  of  the partnership  property  with which he is  entrusted  or  over which he has dominion, is guilty of an offence under s. 405, I.P.C., Harris C.J. observed :               "The Full Bench never seems to have Considered               that there is really no partner’s share in the               property  until  an account (sic) and  it  may               well be that a partner, who retains an  asset,



             is entitled not only to his share according to               the partnership agreement in that asset,  but,               on taking an account, it may be found that  he               is  entitled  to the whole of  the  asset  and               considerably more. In such a case, how can  it               be said that he has been of a breach of  trust               and  has  acted dishonestly  towards  his  co-               partners, if an account would show that he was               entitled  to everything which he had  retained               ?" He has referred to a number of decisions of the Indian  High Courts in some of which the view taken in Okoy Coomar Shaw’s case(1)  was  followed.  One of those  cases  was  Jagannath Raghunathdas v. Emperor(2) where it was held that a  partner may  be  prosecuted  under s. 406,  I.P.C.  for  failure  to account for partnership monies and assets.  In that case the partner who was the accused was given authority by the other partners to collect monies or property and according to  the Bombay High Court in these circumstances lie was "entrusted" with  dominion  over collections made by him.   The  learned Judges who decided that case had, however, pointed out  that the court should approach (1) 13 Bengal Law Reports 307. (2) A. 1. R. 1932 Bom. 47. 433 cases of this kind very carefully because it was  impossible to say in many cases what the share of the accused might be, whether the accused was indebted to the firm or whether  the firm  was indebted to him.  The High Court also pointed  out that  if  the  firm was indebted to him there  might  be  no dishonest  intention  in his dealing  with  the  partnership property.   In  the arguments before us,  apart  from  these three  decisions,  our attention was called to  a  few  more decisions  of  the High Courts in India.  But  whether  they take  one view or the other they do not seem to add to  what has  been said in these three decisions.  We, therefore,  do not  feel  called  upon  to  make  any  reference  to  these decisions. It  seems to us that the view taken in Bhuban  Mohan  Rana’s case(1)  by the later Full Bench of the Calcutta High  Court is the right one.  Upon the plain reading of s. 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  propery 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 s. 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  person.   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 fidu- ciary capacity or in other words cannot be hold to have been "entrusted" with dominion over partnership properties. Mr. Chatterjee who appears for the respondent sought to show that there was special agreement in this case.  According to



him,  by virtue of certain decisions taken at a  meeting  of the partners held on January 7, 1959 the appellant had  been entrusted with the duty of making recoveries of monies  from the  debtors of the firm and, therefore, this was a case  of specific entrustment. (1)  I.L.R. 1962 11 Cal. 23. 434 All that he could point out was item No. 15 in the  minutes, of that meeting which runs thus :               "Shri  Veljibhai agrees to recover the  monies               due  by Shri Kablasingh immediately and  shall               deposit  the  same  with the  Bankers  of  the               firm."               He  has however, not been able to explain  the               next item in the minutes, the relevant portion               of which runs thus :               "(16)  If  in future any  further  moneys  are               required  to be spent the same shall be  spent               out of the coveries of the firm and no partner               shall be bound or responsible to bring in  any               further moneys......... Reading  the two together the meaning seems to be only  this that  as working partner the appellant should carry  on  the work of recovery of the dues of the partnership and that  in respect of the dues from one Kablasingh it was decided  that they  should be deposited in the bank.  It does  not  follow from this that any of the other partners was precluded  from making the recoveries.  Further, even if this is said to  be a  mandate to the appellant item 16 authorises him to  spend the  money for the business of the partnership.  That is  to say,  if  the  money was required for the  business  of  the partnership  it  was not obligatory upon  the  appellant  to deposit  it  in the bank.  In our  opinion,  therefore,  the appellant  cannot  be said to have been guilty  of  criminal breach  of trust even with respect to the dues  realised  by him  from Kablasingh and in not depositing them in the  bank as alleged by the prosecution. Mr.  Chatterjee  finally  contends  that  the  act  of   the appellant will at least amount to dishonest misappropriation of property even though it may not amount to criminal breach of  trust  and, therefore, his conviction could  be  altered from  one  under s. 409 to that under s. 403.   Section  403 runs thus :               "Whoever   dishonestly   misappropriates    or               converts to his own use any moveable property,               shall be punished with imprisonment of  either               description for a term which may extend to two               years, or with fine, or with both." It is obvious that an owner of property, in whichever way he uses  his property and with whatever intention will  not  be liable  for misappropriaion and that would be so even if  he is  not the exclusive owner thereof.  As already  stated,  a partner  has,  undefined  ownership  along  with  the  other partners over all the assets of the, part- 435 nership.   If  he  chooses to use any of them  for  his  own purposes  he  may  be  accountable  civilly  to  the   other partners.    But   he   does   not   thereby   commit    any misappropriation.   Mr. Chatterjee’s alternative  contention must be rejected. in  the  result  we  allow the  appeal  and  set  aside  the conviction and sentence passed against him. Appeal allowed.