Though the contract is of a civil nature, if there is an element of cheating and fraud, it is always open for a party in a contract, to prosecute the other side for the offences alleged. In S.W. Palanitkar v. State of Bihar, (2002) 1 SCC 241 it was held that every breach of contract may not result in a penal offence, but in the very same judgments, it was further held that breach of trust with mens rea gives rise to a criminal prosecution as well. In a given case, whether there is any mens rea on the part of the accused or not is a matter which is required to be considered having regard to the facts and circumstances of the case and contents of the complaint etc. In Anil Mahajan v. Bhor Industries Ltd., (2005) 10 SCC 228, it has been held that where there exists a fraudulent and dishonest intention at the time of the commission of the offence, law permits the victim to proceed against the wrongdoer for having committed an offence of criminal breach of trust or cheating. D R Lakshman v. State of Karnataka, (2019) 9 SCC 677.
Category Archives: Criminal Breach of Trust
The law clearly recognizes a difference between simple payment/investment of money and entrustment of money or property. A mere breach of a promise, agreement or contract does not, ipso facto, constitute the offence of the criminal breach of trust contained in Section 405 Indian Penal Code without there being a clear case of entrustment. In the context of contracts, the distinction between mere breach of contract and cheating would depend upon the fraudulent inducement and mens rea. The mere inability of a party to return the loan amount cannot give rise to a criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, as it is this mens rea which is the crux of the offence. The legislature intended to criminalise only those breaches which are accompanied by fraudulent, dishonest or deceptive inducements, which resulted in involuntary and inefficient transfers, under Section 415 Indian Penal Code. Satishchandra Ratanlal Shah v. State of Gujarat, (2019) 9 SCC 148.
It has been held in Onkar Nath Mishra v. State, (2008) 2 SCC 561, that in the commission of the offence of criminal breach of trust, two distinct parts are involved. The first consists of the creation of an obligation in relation to the property over which dominion or control is acquired by the accused. The second is misappropriation or dealing with the property dishonestly and contrary to the terms of the obligation created.
It has been held in Jaikrishnadas Manohardas Desai v. State of Bombay, AIR 1960 SC 889, that :
“to establish a charge of criminal breach of trust, the prosecution is not obliged to prove the precise mode of conversion, misappropriation or misapplication by the accused of the property entrusted to him or over which he has dominion. The principal ingredient of the offence being dishonest misappropriation or conversion which may not ordinarily be a matter of direct proof, entrustment of property and failure in breach of an obligation to account for the property entrusted, if proved, may in the light of other circumstances, justifiably lead to an inference of dishonest misappropriation or conversion. Conviction of a person for the offence of criminal breach of trust may not, in all cases, be founded merely on his failure to account for the property entrusted to him, but where he is unable to account or renders an explanation for his failure to account which is untrue, an inference of misappropriation with dishonest intent may readily be made.” Ghanshyam v. State of Rajasthan, (2014) 4 SCC (Cri) 82.