Velji Raghavji Patel vs State Of Maharashtra

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Criminal Appeal No. 43 of 1963

Decision Date: 11 December, 1964

Coram: J.R. Mudholkar, Raghubar Dayal

In the matter titled Velji Raghavji Patel versus State of Maharashtra, the judgment was delivered on 11 December 1964 by a bench consisting of Justice J. R. Mudholkar and Justice Raghubar Dayal. The case was reported in the 1965 volume of the All India Reporter at page 1433 and also recorded in the 1965 edition of the Supreme Court Reports (second series) at page 429. Subsequent citations to the decision appear in several later law reports, including the 1967 Supreme Court reference at page 1342, the 1968 reference at page 700, and the 1985 reference at pages 628, 24, 46, 72 and 76. The provisions under consideration were sections 403 and 409 of the Indian Penal Code, 1860 (Act 45 of 1860), which deal respectively with dishonest misappropriation of property and criminal breach of trust. The appellant, Velji Raghavji Patel, had been a working partner in a partnership whose business involved the recovery of partnership dues. The partners had agreed that he would be responsible for collecting these dues and depositing them in a bank. He was subsequently charged and convicted for criminal breach of trust under section 409 on the allegation that he had misappropriated certain sums and had failed to deposit some collections as required. On appeal to the Supreme Court, he contended that the amounts he received were in his capacity as a partner and that he used them for the partnership’s business, arguing that his liability was limited to rendering accounts to the other partners and that his failure to do so did not constitute a criminal breach of trust.

The Court held that the appellant could not be said to have committed criminal breach of trust. The Court explained that merely possessing dominion over partnership property because of partnership status does not satisfy the requirement of entrustment needed to establish a criminal breach of trust; the prosecution must show that such dominion arose from a specific agreement entrusting the accused with the property. The decision in Bhuban Mohan Rana v. Surendra Mohan Das, reported in the Indian Law Reports (Calcutta) at 1952 2 Cal 23, was applied to support this view. Even if the appellant had a mandate to collect certain dues and deposit them, his failure to do so could not be treated as an offence because the other partners had also authorised him to utilise the money for the partnership’s business. Regarding the allegation of dishonest misappropriation under section 403, the Court observed that as a co‑owner of the partnership assets, the appellant’s use of the property, regardless of intention, did not amount to misappropriation. The judgment concerned criminal appeal number 43 of 1963, which was taken on special leave from the Bombay High Court’s decision dated 1 February 1963 in criminal appeal number 972 of 1962. Counsel for the appellant and counsel for the respondent were instructed to present their submissions before the Court.

The appeal was delivered by Justice Mudholkar. In this appeal from the judgment of the Bombay High Court, the Court was required to consider whether a partner could be convicted under section 409 of the Indian Penal Code on the ground that his failure to account for monies belonging to the firm amounted to criminal breach of trust.

The admitted facts were as follows. The firm, Messrs. Bharat Silp Pramandal, was formed in 1954 for the business of building construction and originally consisted of eight partners, the appellant being a working partner. On 6 February 1957 three of the partners retired, and the business continued with the remaining five partners. Disputes arose among those partners and were referred to the arbitration of Mr J. T. Desai, a solicitor.

Pursuant to the arbitrator’s award, the partners entered into a fresh agreement, exhibited as Exhibit N, on 4 June 1958. By virtue of that agreement the appellant’s share in the firm’s business was fixed at fifty per cent of a rupee, while the other partners held the remaining fifty per cent in varying proportions. The complainant, Nagindas Jivraj Mehta, possessed a share of six per cent. The agreement stipulated that the partners would not undertake any new work and it imposed on the appellant the duty to complete all accounts and prohibited him from borrowing money in the name of the firm.

The agreement further required the appellant to use his best efforts to realise all pending bills, security deposits, claims and similar amounts, and also to dispose of the plant, machinery and other assets of the partnership. It provided that, if additional finance was needed, the partners other than the appellant could procure up to Rs 25,000, but any sum exceeding that limit had to be contributed by all partners, including the appellant, individually on a pro‑rata basis according to their respective shares of profit and loss. Clause 8 of the 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.” The Court examined this agreement in detail because it was material to the argument advanced by counsel for the appellant that, as a working partner, he was entitled to utilise the amounts he realised for the conduct of the firm’s business.

The complainant alleged that the appellant had misappropriated a total of Rs 8,905, which he itemised as follows: Rs 2,871, Rs 3,000, Rs 1,100, Rs 1,100, Rs 750 and Rs 84, the total amounting to Rs 8,905. The trial court acquitted the appellant with respect to the last two items but convicted him concerning the first four items. The appellant admitted that he had realised the four amounts in question, but contended that he had done so in his capacity as a partner and had used the sums for the partnership’s business, and therefore asserted that his liability, if any, should be civil rather than criminal.

In his own statement, the appellant explained that he had received the four amounts in question while acting in his capacity as a partner and that he had employed those sums for the business of the partnership. Accordingly, he maintained that his obligation was limited to rendering accounts to his fellow partners and that, under no circumstance, his conduct could be characterised as an offence punishable under section 409 of the Indian Penal Code. He further asserted that the complainant had instituted a civil suit for the dissolution of the partnership and for the production of accounts, and that the criminal complaint before this Court had been filed solely for the purpose of making it difficult, if not impossible, for the appellant to defend that civil suit effectively. On behalf of the appellant it was contended that even if the prosecution were able to demonstrate that the appellant had indeed realised the four amounts and had failed to account for them properly, such a failure would give rise only to civil liability and would not constitute criminal breach of trust under section 409 of the Indian Penal Code. To support this contention, reliance was placed upon the decision in Bhuban Mohan Rana v. Surendra Mohan Das (1). In that case the Full Bench was asked to decide whether a charge under section 406 of the Indian Penal Code could be framed against a person who, according to the complainant, was a partner and was accused of an offence involving property belonging jointly to both partners. All five judges of the Full Bench answered the question in the negative. The leading judgment, delivered by Harris C.J., observed that for criminal breach of trust to be established it must first be shown that the accused had been entrusted with property or with dominion over that property, and that, in the ordinary course, a partner does not hold partnership property in a fiduciary capacity. The learned Chief Justice further pointed out that a partner does not possess a distinct or defined share in any item belonging to the partnership; upon dissolution of the partnership and after an account is taken, it may be found that a partner who retains an asset is entitled to the whole of that asset and possibly more. He referred to the English view that a partner does not hold partnership money in a fiduciary capacity and said that this view appeared to be correct. Referring to the decision in The Queen v. Okhoy Coomar Shaw (1), where a Full Bench had held that a partner who dishonestly misappropriates or converts to his own use any partnership property with which he is entrusted or over which he has dominion is guilty of an offence under section 405 of the Indian Penal Code, 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 … and it may well be that a partner, who retains an asset,”

In this case the Court observed that a partner might be entitled under the partnership agreement to only a prescribed share of a particular asset, but that after a full accounting of the partnership’s affairs it could be discovered that the same partner was in fact entitled to the entire asset and possibly to a still larger portion. The Court then asked how it could be said that the partner had breached trust or acted dishonestly toward his co‑partners if the final account showed that the partner was lawfully entitled to retain everything he had kept. Counsel drew the Court’s attention to a number of decisions of Indian High Courts in which the view expressed in The Queen v. Okoy Coomar Shaw was adopted. One of those decisions was Jagannath Raghunathdas v. Emperor, where the High Court held that a partner could be prosecuted under section 406 of the Indian Penal Code for failure to account for partnership monies and assets. In that case the partner who was accused had been given authority by the other partners to collect money or property, and the Bombay High Court characterised the partner as being “entrusted” with dominion over the collections he made. The learned judges, however, warned that courts should approach such cases with great caution because it is often impossible to determine what share the accused actually possessed, whether the accused was indebted to the firm, or whether the firm was indebted to him. The High Court further pointed out that if the firm owed money to the accused, there might be no dishonest intention in his handling of the partnership property.

The Court noted that, in addition to the three authorities already discussed, the parties referred to several other decisions of Indian High Courts. The Court observed that, regardless of whether those other decisions accepted one view or another, they did not add any substance to the principles articulated in the three previously mentioned judgments, and therefore the Court did not feel compelled to refer to them. The Court expressed the view that the reasoning adopted in Bhuban Mohan Rana’s case, decided by a later Full Bench of the Calcutta High Court, was the correct approach. The Court read section 405 of the Indian Penal Code plainly and concluded that, before a person can be said to have committed criminal breach of trust, it must be shown that the person was either entrusted with property or entrusted with dominion over property that he is alleged to have converted to his own use or disposed of contrary to legal directions. The Court explained that every partner enjoys dominion over partnership property by virtue of his status as a partner, a form of dominion comparable to that which an owner has over his own property. However, the Court held that such a generic kind of dominion does not satisfy the requirement of section 405. To establish “entrustment of dominion” over property to an accused, the mere existence of the accused’s dominion over the property is not

In order to establish criminal breach of trust, it must be proved that the accused possessed dominion over the partnership property as a result of an explicit entrustment. Accordingly, the Court observed that the prosecution was required to demonstrate that a special agreement between the parties had entrusted the accused with dominion over the assets or over a specific asset of the partnership. The Court further explained that, in the absence of such a special agreement, a partner who received money belonging to the partnership could not be said to have received it in a fiduciary capacity, nor could he be said to have been “entrusted” with dominion over the partnership’s property. The counsel appearing for the respondent, identified as Mr. Chatterjee, attempted to prove that a special agreement existed in the present case. He argued that decisions taken at a partners’ meeting on 7 January 1959 had entrusted the appellant with the duty of recovering monies from the firm’s debtors, and therefore that a specific entrustment was in place. To support this claim, he relied on item No. 15 recorded in the minutes of that meeting, which stated: “Shri Veljibhai agrees to recover the monies due by Shri Kablasingh immediately and shall deposit the same with the Bankers of the firm.” However, Mr. Chatterjee was unable to explain item 16 of the same minutes, which read in part: “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….” When the two entries are read together, the Court found that the meaning was that, as a working partner, the appellant was to continue the work of recovering the partnership’s dues and that, with respect to the amount due from Shri Kablasingh, the partners had decided that the recovered sum should be deposited with the firm’s bankers. The Court observed that this does not imply that any other partner was barred from making recoveries. Moreover, even if item 15 was regarded as a mandate to the appellant, item 16 authorized him to spend the money for the business of the partnership, indicating that the appellant was not obligated to deposit the recovered amount in the bank when the money was needed for partnership purposes. Consequently, the Court concluded that the appellant could not be found guilty of criminal breach of trust, even with respect to the dues recovered from Shri Kablasingh and his failure to deposit them as alleged by the prosecution. Finally, Mr. Chatterjee contended that, at the very least, the appellant’s conduct amounted to dishonest misappropriation of property, even if it did not constitute criminal breach of trust, and that the conviction should therefore be amended from one under section 409 to one under section 403. Section 403 is worded as follows: “Whoever dishonestly misappropriates or converts to his own use”.

Section 403 provides that any person who dishonestly misappropriates or converts any moveable property shall be punishable with imprisonment of either description for a term which may extend to two years, or with a fine, or with both. The Court observed that this provision clearly excludes a person who is the owner of the property from liability for misappropriation, regardless of the manner in which he uses the property or the intention he holds. The Court further explained that this exemption applies even when the owner is not the sole or exclusive owner of the property. It was reiterated that a partner in a partnership enjoys an undefined, joint ownership together with the other partners over all the partnership assets. Consequently, when a partner decides to employ any of the partnership assets for his personal use, he may become civilly liable to the other partners for any loss or damage that results, but such use does not, by itself, amount to the criminal offence of misappropriation of property. On this basis, the Court rejected the alternative argument raised by counsel for the appellant, which sought to reinterpret the partner’s conduct as dishonest misappropriation. The Court concluded that the appellant’s actions did not satisfy the elements of the offence under section 403, and therefore the conviction and sentence imposed on him were unsustainable. Accordingly, the appeal was allowed, the conviction and the accompanying sentence were set aside, and the appellant was fully discharged.