Jammu & Kashmir High Court
Sardar Singh vs Karam Singh on 6 September, 2004
Equivalent citations: 2005(1)JKJ371
JUDGMENT Y.P. Nargotra, J.
1. 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 ?
2. The basic facts are that the respondent-complainant filed a criminal complaint against the petitioner-accused seeking his trial for commission of the offences under Section 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.
3. Learned Sub-Registrar Judicial Magistrate Jammu dismissed the complaint by his order dated 30-05-2000 by holding that offences alleged were not constituted.
4. 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.
5. 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.
6. The offence of Criminal Breach of Trust has been defined in Section 405 of the RPC thus:
"405. 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".
7. 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.
8. In case titled Velji Raghavji Patel v. State of Maharashtra, AIR 1965 SC 1433 the Hon'ble Supreme Court considered the question whether a partner can be convicted under Section 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.
9. Their Lordships while accepting the view of Full Bench of Calcutta High Court, expressed in Bhuban Mohan Rana's case AIR 1951 SC 69 and later view of the same High Court taken in Okhoy Coomer Shah's case, 13 Ben. LR 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."
10. In Debabrata Gupta v. S.K. Ghosh, 1970(1) SCC 521, 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 under Section 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 under Section 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.
11. In 'Anil Saran v. State of Bihar and Anr.,' (1995) 6 SCC 142, 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 under Section 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."
12. In Mahal Chand Sikwal v. State of West Bengal and Anr., 1987 Cr.L.J. 1569 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 under Section 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 under Section 403 is made out when there is no allegation that the partnership has been dissolved. Learned trial court after relying upon AIR 1965 SC, 1433 as well as 1987 Cr.L.J. 1569 of Calcutta High Court, came to the conclusion that the charge of misappropriation against the accused partners could not be established.
13. The contrary view, however, has been taken by the learned Additional Sessions Judge, by placing reliance upon case titled 'R.K. Dalmia v. Delhi Administrator', AIR 1962 SC 1821. 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 Bindeswari Prasad v. Emperor, ILR 26 Pat. 703; (AIR 1949 Pat. 69 ) We do not agree with the contention.
(80) Bindeshwari's case, ILR 26 Pat 703: (AIR 1949 Pat. 69), 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 under Section 409 I.P.C. On appeal, the High Court set aside the conviction of the Bindeshwari of the offence under Section 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 under Section 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 Suth WR Cr. 59 at p. 61 (FB). 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."
14. 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.
15. 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.
16. 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.
17. 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."
18. 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 Dalmia's case (AIR 1962 SC 1821).
19. 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.