Can you allege a criminal breach of trust without entrustment of property with the accused? SC opines.

The Supreme Court, in a recent case of criminal breach of trust under Section 405, Indian Penal Code, 1860 (“IPC”) observed that entrustment of property is sine qua non to attract charges under the said section. The case was brought before the Court by the owner of M/s J K Waste Recycling Private Limited (“Petitioner”) who is involved in the business of processing waste plastic material as against a Hyderabad-based company, M/s Ramkey Reclamation and Recycling Private Limited (“Respondent”), after floating a tender inviting bids for plastic recycling.

Background of the dispute

The parties started off with a mutual agreement to conduct two test recycling runs with raw materials sourced by the Respondent before it buys three plants from the Petitioner. While the two test runs were successful, the Petitioner experienced a loss of machine infrastructure during the third cycle to the tune of INR 62,00,000. 

The Petitioner, in its FIR to the Khandala Police Station, complained that due to the wet and peculiar smelling waste material provided by the Respondent and the subsequent formation of sulfuric acid during its processing, various machinery broke down and the Petitioner avoided a fatal fire by a thread. 

The case surfaced before the Supreme Court due to the Petitioner’s appeal against the Bombay High Court’s order.

Analysis of the Supreme Court

The Supreme Court supporting the High Court’s decision in its judgement clarified that one can attract the offence of criminal breach of trust under Section 405 only where the accused has been entrusted with property, and the said property had dishonestly been misappropriated or converted by the accused for its own use.

To determine whether the materials on record indicated an offence amounting to criminal breach of trust, the High Court of Bombay referred to its judgment in State of Haryana v. Bhajan Lal, wherein it analysed the circumstances in which a first information report (FIR) can be legally quashed and came up with a list of reasonably applicable circumstances. It held that the instant case falls under the scenario prescribed under Point no. 6 of the said list which is reproduced hereunder for easy reference.

“Where there is an express legal bar engrafted in any of the provisions of the Code or the concerned Act (under which a criminal proceeding is instituted) to the institution and continuance of the proceedings and/or where there is a specific provision in the Code or the concerned Act, providing efficacious redress for the grievance of the aggrieved party.”

Finally, referring to its judgment in Dalip Kaur & Ors. vs. Jagnar Singh & Ors., (2009) 14 SCC 696, the Supreme Court found that, prima facie, the fundamental components of the offence of cheating were missing. 

As far as the Respondent’s alleged negligent conduct with respect to fire is concerned, the Court held that the instant case does not fulfil the prescribed requirement under Section 285 of IPC which states that the accused must have handled fire or any combustible matter in a rash or negligent manner to endanger human life. The act of recycling waste plastic material and the act of supplying the same by Respondent’s cannot be construed as having been done with fire or any combustible material. In fact, the Court explained that the Respondent cannot be said to have committed a criminal breach of trust merely based on the supply since the act of supplying the same is not negligently or harshly done to endanger human life. 

In light of the abovementioned reasonings, the honourable Supreme Court dismissed the Petitioner’s Special Leave Petition before it and held that the Bombay High Court’s judgment is well reasoned and does not call for interference as it has adequately clarified that its order does not limit Respondent No. 2 in any way to initiate proceedings against the Petitioner for any grievance permissible under law. 

Final Takeaways

Unfavourable information regarding business partners, gained at any time, is a signal to move on in certain cases. The Petitioner ought to have a lookout for ways to identify materials that cannot be recycled considering the adverse effects of processing foreign materials at its plant. In the absence of adequate evidence showcasing otherwise, the Court cannot charge any person with the offence of criminal breach of trust unless the said person manipulated fire or any combustible matter negligently.

Parties involved in criminal breach of trust, cheating, and criminal misappropriation cases can now refer to the precedent set by the honourable Court in the instant case to analyse relevant case facts and evidence to strategically attain a favourable outcome of a dispute.

Dated: June 29, 2022

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