http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6

PETITIONER:

VELJI RAGHAVJI PATEL

Vs.

RESPONDENT:

STATE OF MAHARASHTRA

DATE OF JUDGMENT:

11/12/1964

BENCH:

MUDHOLKAR, J.R.

BENCH:

MUDHOLKAR, J.R.

DAYAL, RAGHUBAR

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6

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,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6

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.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6