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Breach of Trust

8 min read

Supreet Kaur

The owner of a property may entrust his property to another person for some specific purpose like protection, care of the property etc. The one who is responsible to take care or manage such property is called trustee. 

He is expected to perform his duty honestly and to act in such way as he may be directed by the real owner and in absence of any such directions, he must act prudently. A trustee is usually a person who stands in fiduciary capacity to the real owner.

When the trustee defaults in the above mentioned duty and goes against the terms of the agreement, he is said to commit breach of trust. It is defined as trustee’s inability to fulfil the duties placed on him by the trust’s agreement or by general law in respect to the trust’s property or beneficiaries.

For example, opening accounts in trust[1] for benefit of one’s children. But as greed is innate quality of human beings, the trustee may misappropriate that property for his own use. Then the trustee is said to commit breach of trust since he has broken the confidence reposed in him by the true owner.

For example, ‘A’ appoints ‘B’ as the trustee of his property for the benefit of his minor grandson, if B uses the property for his own benefit, he is said to commit breach of trust. Under civil law, trust is formed for benefit of someone. Breach of trust by the trustee may pose problems for the trustor, he may never dare to give his property in trust. So, to curb these practices, we have legal provisions under IPC, 1860.

Breach of trust may be civil or criminal.

Civil breach of trust

The creation of private trust, trustee, duties, and liabilities of trustee are governed by Indian Trust Act, 1882. Trust created under the Act consists of a trustor (one who creates trust), beneficiary (for whose benefit the trust is created) and the trustee( one who holds the trust property).

A trustee commits civil breach of trust if he omits to perform any duty which assigned to him as provided under the Act like protecting the title of trust property, investment of trust money etc and to work according to the directions of the trustor in the best interest of the beneficiary.

In civil breach of trust, he is liable to compensate the trustor or the beneficiary for the loss occurred to trust property owning to trustee’s negligence.

Criminal breach of trust

To constitute criminal breach of trust, mens rea on the part of trustee is essential. If the trustee acts dishonestly and misappropriates the trust property for his own benefit, he is said to commit criminal breach of trust. So dishonest intention on the part of trustee makes the breach a criminal breach of trust. Under civil law, mere omission to perform any duty amounts to civil breach of trust.

There is no need to create a trust as required under Indian Trust Act. Merely giving property to another for care will result in criminal breach of trust if the trustee misappropriates that property dishonestly.

The criminal breach of trust is punishable with imprisonment along with fine.

For example: ‘A’ creates a trust for benefit of his children and appoints ‘B’ as his trustee and direct him to manage the trust property for maintenance of A’s children. B fails to do so. He commits civil breach of trust. In the same case, If B misappropriates the property for his own benefit, say, he sells the property and flee with money, he commits criminal breach of trust.

To deal with criminal breach of trust, we have provisions under Indian Penal Code.

Legal Provisions under IPC, 1860:

Chapter XVII of IPC deals with offences against property and Section 405 to 409 of IPC deals with criminal breach of trust.

Section 405 – Criminal Breach of trust

“Criminal breach of trust- Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own 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”. 

Essentials:

  • Entrustment of Property

This term is not defined under IPC. It simply means trusting a property in the care of another person. When a trustor hands over his property for its protection or for any other purpose as may be prescribed by him, it is known as entrustment. The entrustment may be for benefit of some person or for trustor’s own benefit.

Taking simple example, parking a car in parking area is sufficient entrustment, forming a trust property for benefit of one’s heirs. The entrustment of property is done voluntarily. The property which is to be entrusted may be movable or immovable as Section 405 does not specify the kind of property.

In Jaswant Rai Manilal v. State of Bombay[2], it was held that the securities pledged with a bank for some specific purpose along with conditions amounts to entrustment.

In Ramaswamy Nadar v. State of Madras[3], it was held that entrustment is the most important element. If the entrustment is not there, there cannot be any offence.

So, it can be inferred that entrustment of property is the foremost ingredient since if the property is not entrusted to someone, there arises no question of breach of trust. So firstly, formation of a trust is required.

  • Misappropriation

After the property is entrusted, if the trustee does any kind of misappropriation, he commits breach of trust. Misappropriation means using the property belonging to someone for one’s own purpose. It is the unauthorized use of the property. It means doing anything for which the trustee has no authority.

Illustration

If A entrusts some money with B, and B flee with money or uses that money for his personal use, he commits misappropriation. The misappropriation must be dishonest rather than mere unintentional act or negligence which may invite civil action. But to constitute breach of trust, dishonest misappropriation must be there.

  • Violation of any law or contract:

When a property is entrusted, the trustor himself gives some directions to the trustee about the way the property is to be maintained. These directions may be orally given or written in a contract. The contract may be express or implied. For example: When we consign goods to be transported from one place to another, we expect that the goods would remain in their exact state and in the same condition. Any misappropriation during the transit is breach of trust.

Illustration:

If A appoints a trustee B for his immovable property and direct him to divide that property equally in favour of A’s son after A’s death, it is a contract between A and B. If B does not do accordingly, it is the breach of trust reposed in B through a contract. There may be some law governing the way the property is to be held.

The property seized by police is to be kept in police custody not in personal possession of any police officer. If any one police officer runs away with that property, he is said to act in violation of law.

Punishment for breach of trust

“Whoever commits criminal breach of trust shall be punished with imprisonment of either description for a term which may extend to three years, or with fine, or with both.”

The offence is cognizable, non bailable and is tried by magistrate of first class. The offence is compoundable, at the option of owner in whose property breach of trust is committed, but with the permission of court.

Types of breach of trust:

  • Breach of trust by a carrier, wharfinger, warehouse keeper (Section 407)

“Criminal breach of trust by carrier, etc.—Whoever, being entrusted with property as a carrier, wharfinger or warehouse-keeper, commits criminal breach of trust in respect of such property, shall be punished with imprisonment of either descrip­tion for a term which may extend to seven years, and shall also be liable to fine.”

So, if the breach of trust is committed by:

    • Carrier: One who transports our goods
    • Wharfinger: One who loads or unloads our goods at dockyard
    • Warehouse keeper: The person who oversees a warehouse, the place where goods are stored,

The punishment for them is severe that is imprisonment which may extend to seven years along with fine. The reason being that the trust reposed in them is more and they also receive consideration for the services rendered by them. The offence is cognizable, non bailable and compoundable at the instance of owner of the property.

  • Breach of trust by a clerk or a servant (Section 408)

“Criminal breach of trust by clerk or servant — Whoever, being a clerk or servant or employed as a clerk or servant and being in any manner entrusted in such capacity with property, or with any dominion over property, commits criminal breach of trust in respect of that property, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.”

If the offence is committed by a servant or a clerk, the punishment for them is imprisonment which may extend to seven years along with fine. The offence is cognizable, non bailable and compoundable but with the permission of court.

  • Breach of trust by a public servant, banker, agent or so (Section 409)

“Section 409 – Criminal breach of trust by public servant, or by banker, merchant or agent.—Whoever, being in any manner entrusted with property, or with any dominion over property in his capacity of a public servant or in the way of his business as a banker, mer­chant, factor, broker, attorney or agent, commits criminal breach of trust in respect of that property, shall be punished with 1[imprisonment for life], or with imprisonment of either descrip­tion for a term which may extend to ten years, and shall also be liable to fine.”

If the offence is committed by a public servant like police officers, or by bankers, merchants, brokers, agents, attorneys, the punishment is more severe that is imprisonment which may extend to ten years along with fine. The offence committed by them is cognizable, non- bailable and non- compoundable.

In Superintendent and Remembrance of Legal Affairs v. S.K. Roy[4] ,it was held that misappropriation is done in the capacity of a public servant, then Section 409 may be invoked. An employer of Indian Airlines, who is a public servant, took excess may from the passenger, was held liable under Section 409 of IPC,1860.[5]

Conclusion

Section 405 to 409 of IPC,1860 penalise criminal breach of trust. Depending upon the position of a person, the amount of punishment is prescribed accordingly. Since when something is entrusted with a consideration, the obligation on a trustee increases as he is duly paid for his services.

To check that the trust of people is not broken by the trustees, strict provisions are there under IPC. If we have entrusted someone with our property, it is expected that our property is kept safe. The offender is liable to be punished accordingly.

The offences are made cognizable and non bailable and even non compoundable under Section 409 to ensure that the trust is not breached and if breached, the same is duly punished.

  1. Account in Trust 
  2. AIR 1956 SC 575
  3. AIR 1958 SC 56
  4. AIR 1974 SC 794
  5. AIR 1972 SC 1470