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Criminal Misappropriation and Breach of trust (IPC)

Updated: May 12

Criminal Misappropriation and Breach of trust (IPC)
Criminal Misappropriation and Breach of trust (IPC)


Sec. 403: Dishonest Misappropriation of Property

“Whoever dishonestly misappropriates or converts to his own use any movable property, shall be punished with imprisonment of either description for a term which may extend to two years, or with fine, or with both.” 

Meaning and Explanation

A person who discovers property not in anyone else's possession and takes it with the intention of safeguarding it for or returning it to the rightful owner is not acting dishonestly and does not commit an offence. However, if they later appropriate the property for their own use without making reasonable efforts to identify and notify the owner, they become liable for the offence defined above.

Determining what constitutes reasonable means or a reasonable time in such circumstances is a matter of fact. The finder is not required to know the specific identity of the owner at the time of taking the property. It suffices if, during appropriation, they do not believe it to be their own property or genuinely believe that the true owner cannot be located.

Essential Ingredients

The offence of criminal misappropriation occurs when someone dishonestly appropriates or converts another person's movable property for their own use. It occurs when possession of the property is initially obtained innocently but later becomes wrongful and fraudulent due to a change in intention or the discovery of new facts.

Two key elements define this offence:

  • The accused misappropriates or converts another person's movable property.

  • The accused does so dishonestly.

"Misappropriation" entails improperly using property to the exclusion of the owner, while "conversion" involves appropriating and dealing with another's property as if it were one's own. The accused is not guilty merely for retaining or possessing such property; guilt arises only when they appropriate or convert it for their own use.

Moreover, the property in question must be movable, and one cannot misappropriate their own property. Ownerless or abandoned property cannot be the subject of criminal misappropriation.

It's worth noting that criminal misappropriation also constitutes the offence of "criminal misconduct" under Sec. 5(1)(c) of the Prevention of Corruption Act, 1947. "Dishonestly" refers to doing something with the intention of causing wrongful gain to one person or wrongful loss to another.

Mere misappropriation or conversion is insufficient for the offence; dishonesty is essential, arising as soon as there is an intention to cause wrongful gain or loss. For example, if a person finds a purse, putting it in their pocket does not constitute criminal misappropriation unless there is evidence of an intention to appropriate its contents. Temporary misappropriation is also sufficient for the offence.

Position of Finder of a Lost Article

The finder of lost property should take reasonable steps to identify the true owner but isn't required to go to extraordinary lengths or advertise extensively. Waiting a reasonable time for the owner to claim the property is necessary before appropriating it. If the finder's actions make it unlikely for the true owner to reclaim the property, they may be guilty.

However, if circumstances suggest the property was abandoned, the finder may not be guilty of misappropriation. For instance, if the property is stray but still owned, misappropriation may apply. Yet, if it's an item of little value found in a public area, it may not constitute misappropriation. In cases where the circumstances of loss are unclear and there's a possibility of abandonment, the finder may not be guilty.

Cases of Joint/Partnership property and Agency

One joint owner isn't guilty if they take property from another joint owner. However, a manager of a joint Hindu family may be liable if they wrongfully use the shares of other coparceners after a division of property. Yet, if no division has occurred, they may not be liable.


Proof of Dishonest Intention

Dishonesty must be proven with evidence or inferred from reasonable circumstances; it cannot be assumed automatically. Section 403 applies when the accused retains excess money mistakenly given to them, but not for payments related to time-barred debts. Dishonest intention must be established for criminal liability.

Sec. 404. Dishonest Misappropriation of Property Possessed by Deceased Person at the Time of his Death

Section 404 of the Indian Penal Code addresses the misappropriation of property belonging to a deceased person. It aims to safeguard the assets of the deceased from exploitation by individuals such as servants or strangers.

The section imposes imprisonment for up to three years and a fine for offenders, with extended imprisonment of up to seven years if the offender was employed by the deceased. The section applies to movable property, according to the Bombay and M.P. High Courts, or both movable and immovable property, according to the Allahabad High Court. 

Misappropriation in this context includes wrongful retention or deprivation of the property. Cases have established that removing property from a deceased person does not constitute robbery but qualifies as dishonest misappropriation under Section 404.

However, if robbery and murder occur in the same transaction, the offence falls under Section 392. The term "person" in this context includes a deceased individual.

Distinction between Theft and Criminal Misappropriation

Criminal misappropriation and theft share similarities but also have distinct differences. Both involve the unlawful taking of movable property, but while theft involves the invasion of another person's possession, criminal misappropriation occurs when the offender is already in possession of the property.

In theft, the offence is complete upon the dishonest movement of the property, whereas in criminal misappropriation, it is the subsequent dishonest intention to convert the property to one's own use that constitutes the offence.

Other differences include:

  • Theft can only be committed against a living person, while criminal misappropriation can involve living or deceased persons.

  • Theft cannot be committed against ownerless or abandoned property, whereas criminal misappropriation can.

  • In theft, there is no consent, whereas in criminal misappropriation, consent may or may not be present. For example, if someone entrusted their property to another party for a specific purpose, and that party then misuses it, it constitutes criminal misappropriation.

  • Theft is typically more severely punished than criminal misappropriation.

In a case where someone hands money to another person for a specific purpose, and that person instead misappropriates it, it would generally be considered criminal misappropriation rather than theft.

This is because the possession of the money was transferred innocently, and the dishonest intention to convert it to one's own use arose afterward. Therefore, the offender would likely be charged with criminal misappropriation rather than theft or criminal breach of trust.

Criminal Breach Of Trust

Sec. 405. 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.”

Essential Elements

  • Entrustment: Property must be voluntarily handed over to another person for a specific purpose.

  • Trust: The property must be entrusted to be retained until a certain contingency arises.

  • Misappropriation or Conversion: The person entrusted with the property must dishonestly misappropriate or convert it to their own use.

  • Violation of Legal Contract or Direction of Law: The misappropriation must be against the terms of the trust, legal contract, or law prescribing the mode in which the trust is to be discharged.

Dishonest intention is crucial, distinguishing this offence from civil breach of trust. Negligence does not constitute dishonest intention. In cases where property is entrusted, even public officials like Ministers are held accountable for just and fair handling of public property.

In essence, criminal breach of trust occurs when property entrusted to a person is dishonestly misappropriated or converted against the terms of the trust or law. It's a serious offence, requiring proof of dishonest intention and violation of legal contracts or directions.

Sec. 406. Punishment for criminal 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.”

Dishonest misappropriation of stridhan property amounts to criminal breach of trust - 

Under Indian law, a woman's joint possession of her husband's property doesn't shield her from indictment if she disposes of it improperly.

In Rashmi Kumar v Mahesh Kumar Bhada, it was established that if a wife entrusts her stridhan property to her husband or family member, and they dishonestly misappropriate or convert it, it constitutes criminal breach of trust. No special agreement is needed to prove this. Each case's facts determine how the property came to be entrusted to the husband or family member.

Cases Where there is No Entrustment

In a case where the accused failed to print and deliver a specified number of books as per contract, without being entrusted with any material, it was deemed a civil dispute, not criminal breach of trust.

Bankers who receive deposits are not entrusted with the money but become debtors to the depositors. Hence, they cannot be guilty of criminal breach of trust by misappropriating deposited amounts. Depositing money with interest is akin to a loan transaction, and failure to repay does not constitute breach of trust unless the money is contracted for a specific purpose.


Secs. 407-409: Criminal Breach of Trust by Carrier, Clerk, Public Servant, Agent, etc.

Sec. 407 is applicable to criminal breach of trust by a carrier, wharfinger or warehouse-keeper and provides punishment of imprisonment up to 7 years

Sec. 408 is applicable to criminal breach of trust by clerk or servant and provides up to 7 years’ imprisonment

Sec. 409 reads: 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 imprisonment for a term which may extend to ten years and shall also be liable to fine.

Sec. 409 requires dishonest intention beyond carelessness, covering cases where property is misappropriated or disposed of against orders. It doesn't demand that the property be owned by the state, encompassing situations where property entrusted to another authority reaches the accused for handling.

Entrustment under Sec. 409 can arise in various ways, involving both fraudulent and innocent means. As long as property is given to someone for a specific purpose, the accused, even if not the ultimate recipient, can be deemed entrusted with it [Som Nath v State of Rajasthan AIR 1972 SC 1490]. 

Leading Case Laws

  1. J.M. AKHANEY v STATE OF BOMBAY (AIR 1956 SC 575) - In a case where the Exchange Bank pledged securities entrusted to it by the Cooperative Bank, the accused, as Managing Director of the Exchange Bank, transferred these securities to a third party in violation of their contract. The court clarified that for an offence under Sec. 409, entrustment doesn't necessitate a formal trust relationship but implies a transfer of property to be retained or disposed of by another until a certain event occurs. Although the Cooperative Bank didn't borrow from the Exchange Bank, the accused, with authority to transact on behalf of the bank, had control over the securities, fulfilling the entrustment requirement. The accused's disposal of the securities, causing loss to the pledger and gain to the pledgee, constituted dishonest intention under Sec. 409.

  2. J.M. DESAI v STATE OF BOMBAY (AIR 1960 SC 889) - If a person receives money and fails to account for it, even without a specific time frame for accountability, they commit the offence of wilful omission to account. In a case where two appellants, managing and technical directors of a cloth dyeing company, failed to return cloth entrusted to them for dyeing, they were prosecuted for criminal breach of trust under Sec. 409.

The issue was whether mere failure to account was enough to trigger Sec. 409. The appellants didn't account for the cloth, providing a false explanation. The court ruled that precise misappropriation need not be proven, as failure to account, coupled with dishonesty, implies misappropriation.

While failure to account alone may not always lead to conviction, when coupled with false explanations, it can imply misappropriation. In this case, the appellants' failure to account for the entrusted cloth led to their conviction under Sec. 409.

  1. C.M. NARAYAN ITTIRAVI v STATE OF TRAVANCORE (AIR 1953 SC 478): In a case where the appellant received extra money as a premium over the market price for goods, the question arose whether it constituted criminal breach of trust. The court ruled that when the payment is made as illegal gratification to the accused personally, there's no entrustment involved, as the payee receives the money for themselves, not on behalf of anyone else.

If the money were paid to the accused on behalf of the mills, misappropriating it would constitute breach of trust. However, in this case, the money was deemed the appellant's personal profit, not an additional price for goods on behalf of the mills.

Therefore, the court acquitted the accused of criminal breach of trust, as the money was received as a reward or illegal gratification, not on behalf of the mills.

Distinction between Theft and Criminal Breach of Trust

  • In theft, the act involves wrongfully taking movable property without the owner's consent. Conversely, in criminal breach of trust, the property is lawfully acquired with the owner's consent but dishonestly misappropriated by the entrusted person.

  • While theft concerns movable property, breach of trust can involve any type of property.

  • In theft, the offence is fulfilled upon the dishonest taking of the property. On the other hand, in breach of trust, the offence is completed when the offender dishonestly converts the property for personal use.

Distinction between Criminal Misappropriation and Criminal Breach of Trust

  • Dishonest intent is a shared characteristic in both criminal misappropriation and criminal breach of trust. However, in misappropriation, the offender gains possession of the property through happenstance or other means and then unlawfully appropriates it; no entrustment is necessary. Conversely, in breach of trust, the offender is legally entrusted with the property and dishonestly misappropriates it.

  • Thus, entrustment is a crucial element in the offence of criminal breach of trust. A dishonest conversion of property, obtained by the offender through means other than entrustment, constitutes criminal misappropriation, not breach of trust.

  • In misappropriation, there is no contractual relationship, whereas breach of trust involves a contractual relationship between the offender and the property.

  • Breach of trust encompasses criminal misappropriation, but the reverse is not always true.

  • Criminal misappropriation pertains solely to movable property, while breach of trust can involve both movable and immovable property. Criminal misappropriation can occur with ownerless or lost/abandoned property, but breach of trust cannot.

  • The punishment for criminal misappropriation is imprisonment for 2 years, while for breach of trust, it is imprisonment for 3 years.

  • Criminal misappropriation is non-cognizable, bailable, and triable by any magistrate, whereas breach of trust is cognizable, non-bailable, and triable by a Magistrate of the first class.

  • Both offences can be compounded by the owner of the misappropriated property or the property in which breach of trust occurred, with the court's permission.


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