Jaswantrai Manilal Akhaney Vs. The
State of Bombay [1956] INSC 34 (4 May 1956)
SINHA, BHUVNESHWAR P.
BOSE, VIVIAN JAGANNADHADAS, B.
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 pledge-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 required 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.
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 Cooperative 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 Cooperative
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 Cooperative 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 Cooperative 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 Company 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 Cooperative 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's acts 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 examined 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 Exchange
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 certificate 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 Cooperative 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 Cooperative 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 trustwith 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 Cooperative 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 appellant 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 between 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 Cooperative
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 sufficient 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.
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