Introduction:
When parties enter into an agreement to conduct a business jointly, they often do so amidst pronouncements of mutual trust. When relationships become sour these same parties may be forced to ascertain what the term “trust” means in law. This may in turn lead to consideration of the nature of their relationship. If their “business” has not been incorporated as a company, the law may view their relationship as a “partnership” and if a partner has acted against the interests of the partnership one may wonder whether it is possible to sue the deviant partner either in civil or criminal law for breaching the trust that the other partners had in him.
Since the principles with regards to a partner’s status comparable to association property are not satisfactory, there has been significant vulnerability concerning when a partner can be seen as a trustee of organization property. Further, as partners are trustees to each other their direct could prompt breaks of their guardian commitments throughout their dealings with organization property. On occasion breaks of these trustee commitments could bring about breaches of trust. It is, hence, important to distinguish the circumstances in which partners go about as trustees while they are in charge of organization property. As the standards with respect to common breaches of trust have not been set down reasonably and compactly an exertion will be made to clarify the rules that may empower the courts to recognize breaks of trust and apply the proper principles to the different circumstances wherein breaches of trust by accomplices happen. Moreover, an examination of standards identifying with common breaches of trust might be applicable to clarify the distinctions in the ideas of civil and criminal breach of trust and to assess their hugeness and extension with regards to breaches of trust by accomplices as to organization property.[1]
It is important to know what relationship can be regarded as a partnership or not. The Partnership act of 1890[2] defines partnership as a relationship that “subsists between persons carrying on a business in common with a view to profit”.[3] Thus two parties may be deemed partners even though they may not have agreed to act as partners. If they have acted the way partners would have the courts may view them as “partners”. In other words, if they had carried on a business with a view to profit, they would be “partners”.[4] The courts in effect would look more to the substance of the relationship than to the labels that the parties affix to their relationship in order to determine whether they are partners or not.
Thus, after ascertaining the nature of a relationship to be a partnership breach of trust can be defined as “An act of a trustee that violates the trustee’s duties or the terms of a trust. A breach of trust need not be intentional or malicious; it can be due to carelessness or negligence[5]”, where the trustee liable for the breach of trust can be one of the partners in the business. According to the Indian Trusts Act of 1882, breach of trust is defined as “—a breach of any duty imposed on a trustee, as such, by any law for the time being in force”.[6]
Partners stand in a fiduciary relationship to one another. In his book, author P.D Finn has explained “the limiting obligation assumed by partners in relation to the use and enjoyment of the property itself introduces the fiduciary stamp and distinguishes partners from simple co-owners.”[7] It is the undertaking that each partner gives to the other to act on his behalf that brings about the fiduciary relationship.
A fiduciary relationship is the place where one individual place some kind of trust, certainty, and dependence on someone else. The individual who is appointed trust and certainty would then have a trustee obligation to represent the advantage and interest of the other party. The party who owes an obligation to represent the wellbeing of the other party is known as the trustee. The party to whom the obligation is owed is called the principal. The primary reason for fiduciary connections is to set up a legitimate and believed connection between two parties where one party can depend and be certain that the other individual is working for their advantage and are not utilizing their capacity for their advantage or the interest of an outsider.[8]
Breach of Trust in Civil Law
So basically, while knowing more about the civil breach of trust the main question that comes to mind is when does a breach of trust occur in civil law? If the partner as a trustee has not fulfilled his obligations under the terms of the trust there would be a breach of trust, irrespective of whether he has been fraudulent, negligent, or incompetent. This is often called a “technical” breach.[9] Often clauses were included in the past in trust deeds to relieve the trustee of all liability in the event of a technical breach. The legislature then stepped in and provided the courts with statutory power to relieve the trustees of liability in the event of a technical breach, where the trustee had acted “honestly and reasonably, and ought fairly to be excused.
Section 23 of the Indian Trusts Act of 1882 explains the liability of breach of trust. This section provides for certain conditions where the trustee can be exempted from liability in case of breach of trust. But the most important aspect while determining the liability is the participation of that person in the breach of trust. Anyone who participates with a trustee in a breach of trust may be held liable in a court of equity. If he has received and still holds the trust property or its proceeds, he may be held as constructive trustee thereof; if he has never received or no longer holds the trust property or its proceeds, he may be held liable in equity for damages. It is easy to affix liability upon one who obtains trust property from a trustee with actual knowledge of the existence of the trust and of the fact that the trustee is committing a breach of trust. No principle in the law of trusts is more clearly settled than that a transferee of trust property who knows that the transfer is in breach of trust is liable.[10]
Criminal Breach of Trust
Section 405 of the IPC defines criminal breach of trust. It states that “ Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commits “criminal breach of trust”.[11] In order to prosecute a partner for a criminal breach of trust it has to be established that the partner acted “dishonestly”. Section 24 of the Penal Code defines “dishonestly” as “causing wrongful loss” or “gaining wrongfully”.
“Wrongful loss” is defined in section 23 as loss caused by unlawful means of property to which the person losing is legally entitled. The same section defines “wrongful gain” as gain by unlawful means of property to which the person gaining is legally not entitled. In civil breach of trust situations, the state of mind of the trustee is irrelevant. Unlike in civil law, however, it need not be shown that the partner was in the position of an express trustee for a charge to be laid against him for criminal breach of trust. All that has to be shown is that the partner was “entrusted” with partnership property.[12]
The main ingredient for criminal breach of trust is that:
- The accused must be entrusted with property or dominion over it.
- He must have dishonestly misappropriated the property or converted it to his use or disposed of it in violation of such trust.
Thus, we can say that the principal elements of criminal breach of trust are entrustment and dishonest misappropriation. The term ‘entrusted’ is wide enough to include in its ambit all cases in which property is voluntarily handed over for a specific purpose and is dishonestly disposed of contrary to terms on which possession has been handed over.[13] Entrustment need not be expressed; it can be implied.[14] There is a critical view about the word “property” used in this section. In the case of R K Dalmia vs Delhi Administration,[15]the Supreme Court held that the word ‘property’ is used in the Code in a much wider sense than the expression ‘moveable property’. There is no reason to restrict the meaning of the word ‘property’ to moveable property only when it is used without any specification in Section 405. The usage of the word dominion implies the meaning of control over the property. In the case of Shivnatrayan versus the State of Maharashtra[16], it was held that the head of an organization was in the situation of a trustee and being a trustee of the resources, which has come into his hand, he had domain and authority over the equivalent.
Notwithstanding, in regard of partnership firms, it has been held[xii] that however every accomplice has domain over property by the goodness of being an accomplice, it’s anything but a territory which fulfills the necessity of s 405, as there is no ‘entrustment of territory, except if there is an uncommon arrangement between accomplices making such entrustment.
One of the significant elements that constitute a criminal breach of trust is dishonest intention and the proof of intention or guilty mind is the essence for proving liability. In Krishan Kumar V Union of India[17], the denounced was utilized as an associate vendor in the Central Tractor Organization (CTO) at Delhi. Among different obligations, his obligation was the taking of conveyance or transfer of merchandise got by rail for CTO. The accused had taken conveyance for a specific wagonload of iron and steel from Tata Iron and Steel Co, Tatanagar, and the merchandise was eliminated from the railroad stop yet didn’t arrive at the CTO.
At the point when addressed, the accused gave a faulty clarification that the products had been cleared, however later expressed that he had taken out the merchandise to another railroad siding, yet the merchandise was not there. The safeguard form of the charge was dismissed as bogus. In any case, the indictment couldn’t build up how precisely the products were abused and what was the specific use they were put to. In this unique circumstance, the Supreme Court held that each situation didn’t need to demonstrate in what exact way the accused individual had managed or appropriated the products of his lord. The question is one of intention and not direct proof of misappropriation.
If proven beyond reasonable doubt, a criminal breach of trust can attract a punishment of imprisonment for three years or a fine or both.[18] While the following sections in the IPC (Section 406, 407, and 408) attract greater intensity of punishment. Criminal breach of trust carried out by a carrier, clerk, or servant is punished with imprisonment for seven years or a fine or both. Criminal breach of trust by a public servant, banker or merchant, or agent gets an even greater punishment up to ten years or fine or both.
On a plain analysis, the intensity of punishment increases down the sections. This is because of the special status and the trust which a public servant enjoys in the eyes of the public as a representative of the government or government-owned enterprises. The persons having a fiduciary relationship between themselves have a greater responsibility for honesty as they have more control over the property entrusted to them, due to their social relationship. A mere carelessness to observe the rules of treasury ipso facto cannot make one guilty of criminal breach of trust.[19]
In a case of Superintendent and Remembrancer of Legal Affairs v SK Roy[20] the accused, a public servant in his capacity in Pakistan unit of Hindustan Co-operative Insurance Society in Calcutta which was a unit of LIC, although not authorized to do so directly realized premiums in cash of some Pakistani policyholders and misappropriated the amounts after making false entries in the relevant registers. The main issue in this case was whether obtaining money from the policyholders directly which was unauthorized, amount to acting in his capacity as a public servant.
The Supreme Court held that “it is the ostensible or apparent scope of a public servant’s authority when receiving the property that has to be taken into consideration. The public may not be aware of the technical limitations of the powers of the public servants, under some technical limitations of the powers of the public servants, under some internal rules of the department or office concerned. It is the use made by the public servant of his actual official capacity, which determines whether there is sufficient nexus or connection between the acts complained of and the official capacity to bring the act within the scope of the section. So, in case, it was held that the accused was guilty of an offense under s 409”.[21]
Conclusion
In circumstances where there is no “trust” that is perceived in common law or “entrustment” as indicated in the Penal Code, the cures that the accomplices have against a delinquent accomplice for break of a trustee commitment would be either an activity for an account under the Partnership Act or an impartial cure. Is the idea of “entrustment” in criminal law more extensive in’ scope than the “express trust” idea and more with regards to productive trusts in common law? “Unconscionable conduct” can offer ascent to a useful trust. Just “dishonest” conduct by an individual who has been offered the property to use for a specific reason prompts the commission of criminal breach of trust.
Does the norm of care expected of a trustee as communicated in the cases contrast from the idea of dishonest nature and different types of lead recorded in 2(a), (b) and (c) of Section 405 of the Penal Code? Is there a critical contrast between standards for ID of breaks of trust in common and criminal law? Should the standards for break of trust be altogether extraordinary taking into account the idea of the therapeutic estimates accessible in common and criminal law? Indeed, even in different areas of law, for example, negligence, defamation, criminal power (and “battery” in tort), and assault, the common and criminal laws distinguish “wrongs” through generously similar standards. Should the ways to deal with breach of trust be extraordinary?[22]
References:
[1] Canagarayar, J. (1986). BREACH OF TRUST BY PARTNERS. Malaya Law Review, 28(2), 214-241. Retrieved December 5, 2020, from http://www.jstor.org/stable/24864570
[2] The English Partnership Act c. 3
[3] S. 1(1) of the Partnership Act
[4] J.E. Smyth and D.A. Soberman, The Law and Business Administration in Canada (1983) at p. 633
[5] Breach of trust. (n.d.). LII / Legal Information Institute. https://www.law.cornell.edu/wex/breach_of_trust
[6] The Indian Trusts Act, 1882 S.3
[7] P.D. Finn, Fiduciary Obligations (1977) at p. 96
[8] Concepts of fiduciary relationship in Indian laws. (n.d.). Legal Service India – Law, Lawyers and Legal Resources. https://www.legalserviceindia.com/legal/article-1729-concepts-of-fiduciary-relationship-in-indian-laws.html
[9] 9 D.W.M. Waters, Law of Trusts in Canada (1984), a, note 19 at pp. 987-88
[10] Scott, A. (1921). Participation in a Breach of Trust. Harvard Law Review, 34(5), 454-482. doi:10.2307/1329469
[11] The Indian Penal Code,1860, S.405
[12] Canagarayar, J. (1986). BREACH OF TRUST BY PARTNERS. Malaya Law Review, 28(2), 214-241. Retrieved December 5, 2020, from http://www.jstor.org/stable/24864570
[13] Somnath Puri v State of Rajasthan (1972) 1 SCC 63.
[14] State of Madhya Pradesh v Pramode Mategaonkar (1965) 2 CrLJ 562 (MP).
[15] AIR 1962 SC 1821.
[16] AIR 1980 SC 439
[17] AIR 1959 SC 1390
[18] The Indian Penal Code,1860, S.406
[19] Lal Raoji, (1928) 30 Bom. L.R. 624.
[20]AIR 1974 SC 794
[21] Sarika. (2020, November 09). Criminal Breach Of Trust. Retrieved December 05, 2020, from https://www.lawctopus.com/academike/criminal-breach-trust/
[22] Canagarayar, J. (1986). BREACH OF TRUST BY PARTNERS. Malaya Law Review, 28(2), 214-241. Retrieved December 5, 2020, from http://www.jstor.org/stable/24864570
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