Criminal Appeal No. 418 of 1958

13th August, 1958.

Petitioner Counsel: J.D. Dholakia, for the Complainant

Cases Cited:
Hari Prasad v. The State, AIR 1953 All 660 (V 40),1953 Cri LJ 1496 [Para 15]
Emperor v. Lalloo Ghella, 6 Bom LR 553,1 Cri LJ 757 [Para 15]
Emperor v. Jagannath Righunathdas, AIR 1932 Bam 57 (V 19),33 Bom LR 1518,33 Cri LJ 317 [Para 7]
Queen v. Okhoy Coomar Show, 13 Beng LR 307,21 Suth WR Cr. 59 (FB) [Para 9]
Bengal v. Ludur Chandra Das, AIR 1932 Cal 465 (V 19),33 Cri LJ 267 [Para 10]
Bhuban Mohan Ram v. Surendra Mohan Das, AIR 1951 Cal 69 (V 38),ILR (1952) 2 Cal 23,52 Cri LJ 723 (FB) [Para 13]
Jaikrishna v. Emperor, AIR 1950 Nag 99 (V 37),ILR (1950) Nag 379,51 Cri LJ 607 [Para 10]
V. Venkata Reddy v. K.C. Venkata Reddy, AIR 1941 Rang 342 (V 28),43 Cri LJ 263 [Para 15]
Piddocke v. Burt, (1894) 1894-1 Ch 343,63 LJ Ch. 246 [Para 5]

JUDGMENT

TARKUNDE, J. :-This appeal by the State is directed against the acquittal of the respondent of offences under Sec. 406 and 477A, I.P.C. The respondent was convicted of these offences by the Judicial Magistrate First Class, Poona Cantonment, who sentenced him under Sec. 406 I.P.C. to rigorous imprisonment for six months and a fine of Rs. 200, in default, rigorous imprisonment for two months, and under Sec. 477A, I.P.C., to rigorous imprisonment for six months and a fine of Rs. 100 in default, rigorous imprisonment for one month. The substantive sentences were ordered to run concurrently. In appeal, the, additional Sessions Judge, Poona set aside the order of conviction and sentence and acquitted the respondent.

2. Shortly stated, the prosecution case was as follows :- Karasandas Bhanji, the complainant in this case, and Nevrekar are partners of a firm in Bombay called "A. Harisli and Co. Bombay." In 1955 they agreed with the respondent (who will hereafter be referred to as the accused) to start another partnership in Poona. Business of this partnership was started in Poona on 24th April 1955. A few days later on 28th April 1955, a partnership

deed was executed between the three partners. The partnership deed provided that all the capital of the firm was to be supplied by Karsandas Bhanji and Nevrekar, who were to be the financing partners. The accused was to be the working partner and was to manage the shop of the firm in Poona. The business of the partnership was of supplying oats, barley, gram, etc. to stable owners and farm owners in Poona and to other wholesale dealers. The financing partners were to receive interest at 7 1/2 per cent, on the capital invested by them, and they were also entitled to 76 per cent, of the profits, the accused being entitled to the remaining 24 per cent, of the profits. The losses were also to be shared in the same proportion. The financing partners were given the liberty of withdrawing any part of the capital invested by them. But there was a clause in the partnership deed, which provided that till the annual accounts were made up, none of the partners was entitled to withdraw any amount from the partnership by way of monthly withdrawals. The name of this partnership in Poona was to be "A. Harish and Co., Poona." The prosecution case is that initially the accused sent copies of bills and invoices to the financing partners, but later on stopped doing so. The financing partners wrote letters asking for the copies, and further asking the accused to show them the accounts of the partnership, but the accused avoided compliance on one pretext or another. On 7th November 1955 the financing partners came to Poona, and there they closed the account of the partnership which had been opened in the Dena Bank, Poona. Some time later the complainant is alleged to have found that a cheque sent by a customer of the firm was presented by the accused for collection in his personal account. A complaint was then lodged with the police in Bombay, and the account books of the Poona firm were attached. On inspection of the accounts, the complainant found that there was a false entry in the accounts showing that an amount of Rs. 10,000 was paid to the financing partners on 7th November 1955. Hence he lodged a complaint under Section 406 I.P.C against the accused at the Cantonment Police Station, Poona. He also got the account books audited. In the course of investigation, it was found that in order to show that the cash balance on hand on 7th November 1955 was more than Rs. 10,000, two false credit entries were made in the accounts, one of Rs. 633-8-0 on 2nd November 1955 as an amount received from one R.R. Komandur and another of Rs. 2611-8-0 on 3rd November 1955 as an amount received from L.W. Marable. It was also found during the investigation that the actual amount misappropriated by the accused in this manner was Rs. 6755. Accordingly the accused was tried for criminal breach of trust under Sec. 406 I.P.C. in respect of the amount of Rs. 6755, and for falsification of accounts under Sec. 477A, I.P.C. in respect of three items, namely, the credit entry of Rs. 633-8-0 dated 2nd November 1955 and the debit entry of Rs. 10,000 dated 7th November 1955.

3. The accused denied that he was a partner of the complainant and of Nevrekar at the relevant time. He claimed that the complainant and Nevrekar backed out the partnership which was initially formed, that thereafter the shop in Poona was of his exclusive ownership, and that the relations between him and the complainant and Nevrekar were of debtor and creditors. He also claimed that an amount of Rs. 10,000 was in fact paid to the complainant and Nevrekar on 7th November 1855, and that neither the debit entry of Rs. 10,000 nor the two credit entries were false.

4. On the evidence, the learned Magistrate who tried the accused came to the conclusion that the accused was a partner of the complainant and Nevrekar as alleged by the prosecution. He also held that no amount was paid to the complainant and. Nevrekar on 7th November 1955 and that the accused misappropriated an amount of Rs. 6755 belonging to the firm. He also came to the conclusion that three entries in respect of which the accused way charged were false entries, and that these entries were made on the direction of the accused at a time when the accused was managing the affairs of the firm and was acting as a servant or officer of the firm. Accordingly, the learned Magistrate convicted the accused and sentenced him as stated above.

On appeal, the learned Additional Sessions Judge. Poona, confirmed all the findings of fact of the trial Magistrate. He held that the accused had, to put it in his words, "swallowed the balance of the amount of Rs. 6755." He also held that the three entries mentioned above were false entries. The reason why he acquitted the accused was that according to him, on the facts proved, no offence could in law be said to have been committed. He held that no offence of criminal breach of trust under Sec. 406 I.P.C. was committed, because the accused was, along with the other partners a co-owner of the partnership property, and that he could not be regarded as having been entrusted with that property. Following a decision of the Full Bench of the Calcutta High Court in Bhuhan Mohan Rana v. Surendra Mohan Das, ILR (1952) 2 Cal 23 : (AIR 1951 Cal 69), he held that a partner cannot be convicted of criminal breach of trust in respect of partnership property, unless it is shown that there was a special agreement by which he was entrusted by his co-partners with that property, and that in the present case no such special agreement has been established. The reason why the learned Additional Sessions Judge acquitted the accused of the offence under Sec. 477A was that a partner could not be said to have been employed as a clerk, an officer or a servant of the firm and that in any case "the special status of the accused as the manager or clerk for writing and maintaining the accounts has not been proved by the prosecution."

6. Before dealing with these questions of law, it is necessary to state that we heard Mr. Kamat on behalf of the accused on the questions of fact decided by the Courts below. After hearing Mr. Kamat on these points, we are satisfied that the findings of the Courts below are correct. Mr. Kamat urged in particular that the lower Courts were wrong in holding that the amount of Rs. 10,000 was not paid by the accused to the financing partners on 7th November 1955. Mr. Kamat drew our attention to the admission of the complainant in his cross examination that he had been paid thousands of rupees by the accused, and that he had not passed receipts for the amounts so paid to him. Mr. Kamat, therefore, argues that the mere absence of a receipt for Rs. 10000 should not be regarded as a circumstance sufficient to disbelieve the statement of the accused that Rs. 10000 were in fact paid to the financing partners on 7th November 1955. There were, however, several reasons why the Courts below came to the conclusion that no amount was paid to the financing partners on that day. In the first place, the real balance in the accounts of the partnership on that day was less than Rs. 10000, because the credit entries made in favour of R.R. Komandur and L.W. Marable were false. Moreover, although there might

have initially been relations of confidence between the accused on the one hand and the financing partners on other, the confidence had been shaken and the relations between them had already become strained before the financing partners visited Poona on 7th November 1955. This is clear from a large number of letters written by the complainant to the accused prior to 7th November 1955. Copies of those letters were produced in evidence, and the statement of the accused that he had not received any one of these letters was disbelieved by the Courts below. We are, therefore, satisfied that the findings of the lower Courts that no amount was paid to the financing partners on that day and that the debit entry of Rs. 10000 was false, are amply borne out by the evidence on record. We have also heard Mr. Kamat on some of the other findings of fact, but since we agree with the conclusions of the Courts below as well as the reasons in support thereof, it is not necessary to deal with them any further.

7. On the question whether a partner can be held to be guilty of criminal breach of trust in respect of a partnership asset, we have direct authority of this Court in Emneror v. Jagamiath Raghunath Das, 33 Bom LR 1518 : (AIR 1932 Bom 57). In that case a Division Bench came to the conclusion that the words of Sec. 405 of the Indian Penal Code are wide enough to cover the case of partner. It was held that where one partner is given authority by the other partners to collect moneys or property of the firm, he is entrusted with dominion over that property; and if he dishonestly misappropriates it, he comes within Sec. 405 of the Indian Penal Code. The judgment of the learned Judges composing the Bench contains a note of caution that where a partner is prosecuted for criminal breach of trust, it is usually very difficult to prove a dishonest intent which is an essential ingredient of the offence because in many cases it is impossible to say what share the partner may have in then on assets of the partnership on dissolution and accounts, it was, however, laid down that if the dishonest intent was clearly established, there was no reason why a partner could not be convicted of criminal breach of trust in respect of a partnership asset.

8. It is not a little surprising that the learned Additional Sessions Judge does not refer in his judgment to the above decision, though it was expressly relied upon in the judgment of the trial Magistrate. What is more, in the judgment of Full Bench of the Calcutta High Court in ILR (1952) 2 Cal 23 : (AIR 1951 Cal 69), the aforesaid Bombay decision has been mentioned and to some extent dissented from. Under the circumstances it was clearly not open to the learned Additional Sessions Judge to rely upon the Calcutta case and not even refer to a decision of this Court by which he was bound.

9. We are ourselves bound by the decision of the Division Bench of this Court in 33 Bom LR 1518 : (AIR 1932 Bom 57). Applying the principles laid down in that decision to the facts of the present case, there is no doubt that the accused is guilty of criminal breach of trust and is liable to be punished under Sec. 406, I.P.C. He was the working partner and was in charge of the assets of the partnership in Poona. He was debarred by the forms of the partnership agreement from making any withdrawals for personal use before the settlement of accounts at the end of the year. He was, therefore, entrusted with dominion over the assets of the partnership. There is also no doubt that he misappropriated an amount of Rs. 6755. The fact that he brought about a false debit entry of Rs. 10000 to make it appear that he had paid that amount to his financing partners, makes it clear that his intention was dishonest. That being so, he is clearly guilty of criminal breach of trust under Sec. 406 of the Indian Penal Code.

10. Mr. Kamat however has urged that this Bombay decision has been disapproved by a Judge of the Nagpur High Court in Jaikrishna v. Emperor, ILR 1950 Nag 379 : (AIR 1950 Nag 99), as well as by a Full Bench of the Calcutta High Court consisting of five Judges in the aforesaid case of ILR (1952) 2 Cal 23 : (AIR 1951 Cal 69) and that we should refer the question involved to a Full Bench. This Calcutta Full Bench case, Mr. Kamat urged, partially disapproves an old Calcutta Full Bench decision, Queen v. Okhoy Coomar Show, 13 Beng. LR 307, on which this Court relied in 33 Bom LR 1518 : (AIR 1932 Bom 57). After carefully going through the judgment in which the Bombay case has been dissented from, we have, with great respect, come to the conclusion that there is no reason why we should suggest any departure from the view adopted in the Bombay case.

11. The reasons why a partner cannot normally be regarded as being entrusted with the assets of the partnership have been very exhaustively given in the judgments of the learned Judges who decided in the case ILR (1952) 2 Cal 23 : (AIR 1951 Cal 69). The principal judgment in the case way delivered by Harries C.J., and supplementary judgments were delivered by P.R. Mukharji, J. and Banerjee J. The main reason given in the Judgment of Harries, C.J. in support of his conclusion was that a person cannot be entrusted with properly of which he is a co-owner, that a person can be entrusted with only such property as does not belong to him. The learned Judge relied on the decision in Piddocke v. Burt, (1894) 1 Ch. 343, in which Chitty J. held that one partner receiving assets of the partnership on account of himself and his co-partners was not liable to imprisonment under Sec. 4(3) of the Debtors Act, 1869, as a person acting in a fiduciary capacity. In the course of his judgment, Chitty, J. observed that when a partner receives money belonging to the partnership on account of himself and his co-partners, he does not receive it in a fiduciary capacity. Further, reliance was placed by Harries, C.J. on the fact that at common law in England a partner could not be charged with either larceny or embezzlement of partnership property, and that an amendment had to be brought about in the Larceny Act so as to create a legal fiction that when a partner steals or embezzles partnership property, he is to be treated as if he was not a co-owner of the property. Since a corresponding provision is not made in the Indian law, Harries, C.J. concluded that a partner cannot be convicted of criminal breach of trust in respect of property belonging to the partnership. This conclusion, however, was qualified by the statement that there can be a special arrangement between the partners, by virtue of which one of them might be entrusted with property, or with dominion over it. The nature of such special arrangement between the partners was not defined in that decision, but it appears from the judgment of Harries, C.J., and from the supplementary judgments of P.B. Mukharji, J., and Banerjee, J., that the arrangement between the partners must either amount to converting a particular partnership property into the separate property of a partner, or to conferring on one of the partners the sole right to the possession of that property. If we were to apply this test to the present case, it must be held that although the accused was the working partner and was in exclusive possession of the assets of the partnership, he was not given the sole right to the possession of the assets, nor was he excluded from the joint ownership of

the assets. It would therefore appear that on the view taken by the Calcutta High Court the accused in this case cannot be convicted of criminal breach of trust.

12. We are, with the greatest respect, unable to agree with the view that a person cannot be entrusted with any property of which be is a co-owner, or in which he has some beneficial interest. It appears to us that it is not safe to rely on English decision in construing the scope of S. 405 of the Indian Penal Code; nor is it proper, with great respect, to construe that section with reference to the English common law. In English law there was and there is no specific offence of criminal breach of trust. To be an offence, criminal breach of trust must in English law fall within the definitions of larceny and embezzlement. These definitions were initially very narrow, and had to be gradually enlarged by judicial decisions and parliamentary enactments. We find that a similar view about the unhelpfulness of English precedents and common law principles in ascertaining the scope of Sec. 405 of the Indian Penal Code was adopted by a Judge of the Rangoon High Court in Venkata Reddy v. K.C. Venkata Reddy, AIR 1941 Rang. 842.

13. Section 405 applies in terms to any person who is "in any manner entrusted with property, or with any dominion over property". We are unable to see why in principle a partner, being one of the co-owners of partnership property, cannot be entrusted with that property or with dominion over it. The view that he cannot be so entrusted runs counter to certain provisions of the Indian Trusts Act which provide or assume that a partner in possession of partnership property is in the position of a constructive trustee. Sections 80 to 96 of the Indian Trusts Act deal with constructive trusts, and Sec. 94 provides as follows :

"In any case not coming within the scope of any of the preceding sections, where there is no trust, but the person having possession of the property has not the whole beneficial interest therein, he must hold the property for the benefit of the persons having such interest, or the residue thereof (as the case may be), to the extent necessary to satisfy their just demands."

It seems obvious that when a partner is in possession of property belonging to the partnership, he "had not the whole beneficial interest therein", and therefore Sec. 94 casts upon him the duty of holding the property of the residue thereof for the benefit of the other partners to the extent necessary to satisfy the just demands of those other partners. This section is to be read with S. 80, which provides that an obligation in the nature of a trust is created in cases covered by "the following sections" including S. 94. A reference may also be made to S. 88, which provides :

"Where a trustee, executor, partner, agent, director of a company, legal adviser, or other person bound in a fiduciary character to protect the interests of another person, by availing himself of his character, gains for himself any pecuniary advantage or where any person bound enters into any dealings under circumstances in which his own interests are, or may be, adverse to those of such other person and there by gains for himself a pecuniary advantage, he must hold for the benefit of such other person the advantage so gained,"

This section, although it does not apply directly to partnership assets in the possession of a partner, does indicate that a partner is "bound in a fiduciary character to protect the interests of another person." Illustration (d) to that section is in the following terms :

"A, a partner, buys land in his own name with funds belonging to the partnership. A holds such land for the benefit of the partnership."

This illustration shows that a partner, when he buys land with the funds of the partnership, becomes and constructive trustee of the land for the benefit of the partnership. If that is so, it is difficult to suppose that he was not initially a constructive trustee of the funds with which the land was purchased. These provisions do not appear to have been noticed in the Calcutta case and the of her cases to which we have been referred. Since we agree with the view expressed in 33 Bom LR 1518 : (AIR 1932 Bom 57), we do not see any reason why the question arising in this case should be referred to a Full Bench.

14. It may be added that if we had conic to the conclusion that the accused in this case could not be convicted under S. 406, I.P.C., of criminal breach of trust, we would have nevertheless convicted him of criminal misappropriation under S. 403, I.P.C. Illustration (c) to that section is as follows :

"A and B being joint owners of a horse, A takes the horse nut of B's possession, intending to use it. But, if A sells the horse and appropriates the whole proceeds to his own use, he is guilty of an offence under this section."

The illustration shows that a co-owner might criminally mis-appropriate property which he owns jointly with others. It appears from the judgment of P.B. Mukharji, J., in the aforesaid Calcutta case ILR (1952) 2 Cal 23 : (AIR 1951 Cal 69), that according to the view of the Calcutta Full Bench a partner cannot be convicted even of criminal misappropriation in respect of partnership property. Referring to illustration (c) to S. 403, P.B. Mukharji, J., says :

"The partnership account is a general account and is not confined to a specified item of property as the horse in the illustration."

With great respect, the misappropriation which a partner may commit is necessarily of specific property, and the fact that the partnership account is a general account has relevance only to the existence of dishonest intention of the partner, and not to whether the property is specific or is jointly owned. The learned Judge has observed in another part of his judgment that partnership property is not a specific and ascertainable property, but is of an equivocal and problematic nature until dissolution and accounts. It seems to us with great respect that partnership property is specific and ascertainable, and what is equivocal and problematic is not partnership property, but the net share which a particular partner may get on dissolution and accounts. However, since we hold that the accused in this case can be convicted under S. 406, I.P.C., it is not necessary to consider further why he could have been convicted under S. 403, I.P.C., if the fact of entrustment has not been established.

15. On the question whether a partner can be guilty of an offence under S. 477A, there is another authority of a Division Bench of this Court, to which also no reference has been made by the learned Additional Sessions Judge. In Emperor v. Lalloo Sheila, 6 Bom LR 553, it was held that where a partner in a firm is appointed as such to manage the business of the firm or to write its accounts, he acts as its servant; and if he falsifies accounts, he is liable to be punished under S. 477A of the Indian Penal Code. In the present case, the accused was a working partner. He was appointed as a partner to manage the business of the firm in Poona. The other partners were in Bombay. As

a working partner and a manager of the firm it was the duty of the accused to maintain the accounts of the firm in Poona. The accused himself says in his statement under S. 342, Criminal. Procedure Code, that he used to write kacha accounts, and that pucca accounts were kept from the Kacha accounts written by him. Evidence was also produced of the person who actually wrote the accounts, and he deposed that the accounts were written at the dictation of the accused. The terms of S. 477A, I.P.C., apply not only to a clerk, officer or servant", but also to a person '"acting in the capacity of a clerk, officer or servant." The accused was clearly acting in the capacity of a servant of the partnership and is liable to be punished for the false entries caused to be made by him. The learned Additional Sessions Judge observes in his judgment that because the account books belonged to the partnership firm and because the accused was a partner, it was not possible to say that the accused was employed by any person to maintain accounts and that therefore the accused could not be convicted under S. 477A. In support of that conclusion the learned Judge relies on the decision in Hari Prasad v. The State, AIR 1953 All 660. It was held in that case that a person cannot be held guilty under S. 477A, unless he was employed by the firm in the capacity of either a clerk or an officer or a servant. That decision conflicts with the view taken by this Court in 6 Bom LR 553. Section 477A speaks of a person who is "employed or acting in the capacity of a clerk, officer or servant." That being so, we do not see any reason why the scope of S. 477A should be confined to persons who are employed in those capacities, and should not extend to persons who act in those capacities. We also observe that the Calcutta High Court in Supdt. and Remembrancer of Legal Affairs Bengal v. Ludur Chandra Das, AIR 1932 Cal 465, adopted a view similar to that in 6 Bom LR 553.

16. We must, therefore, hold that the learned Additional Sessions Judge was clearly wrong in law in acquitting the accused. We convict him under S. 406, I.P.C. and sentence him to rigorous imprisonment for six months and a fine of Rs. 200/- an default, rigorous imprisonment for two months. We also convict him under S. 477A and sentence him to rigorous imprisonment for six months and a fine of Rs. 100, in default, rigorous imprisonment for one month. The substantive sentences will run concurrently. Warrant to issue.

Appeal Allowed