# Kartar Singh and others v. The State of Punjab

- **Citation:** [1956] 1 S.C.R. 483
- **Court:** Supreme Court of India
- **Decided:** 1953-10-20
- **Case number:** Criminal Appeal No. 152 of 1954
- **Bench:** VIVIAN BosE, Jagannadhadas, B. P. Sinha
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/kartar-singh-and-others-v-the-state-of-punjab-1241
- **Pages:** 23

## Headnote

Criminal breach a/trust-Conviction of a banker, Validity a/-
Government Promissory Notes pledged with a bank to cover overdraft
-No overdraft by the pledgor-Managin(J Director actin(J on behalf
of all the Directors pledging the Notes to borrow money for the use of
the bank-Legality-Sale of the Notes by the creditors to realise their
dues and conseqitent inability of the bank to return them-Mens rea
-Sanction to prosecute by the Company Judge, if i·equired-Framing
of charge, if defective-Indian Penal Code (Act XL V of 1860 ), ss.
409, 79-Indian Contract Act (IX of 1872), s. 179-Indian Companies Act (VII of 1913), s.179-Code of Criminal Procedui·e (Act V
of 1898), ss. 221, 222, 223.
The appellant 'Was the Managing Director of a bank and held
a power of attorney to act on behalf of its Directors and authorising
him to borrow money on behalf of the bank. Certain Government
Promissory Notes were pledged with the bank by another bank to
cover an overdraft account up to a specified amount. There was,
however, no overdraft by the pledgor.
The pledgee bank was in a
precarious financial condition. The appellant pledged the securities
with a third party to get a loan for the bank's use and on its failure
63
1956
Kartar Singh
and others
v.
The State of
Punjab
Bhagwati J.
1956
May4
1956
Jaswantrai
Manilal Akhaney
v.
The State of
Bombay
484
SUPREME COURT REPORTS
[1956]
to repay the same on demand, the creditors sold the securities fo'r
realising their dues.
The pJedgee bank was thus no longer in a
position to return the securities on demand made by the pledger.
Information was lodged with the police at tha instance of the Official
Liquidator, appointed to wind up the bank and the appellant was
put up for trial under s. 409 of the Indian Penal Code.
Held, that the appellant was guilty of the offence charged and
the appeal must be dismissed.
Heldf,.rther, that in the absence of any overdraft by the
pledger, the pledgee bank acquired no interest in the securities which
it could deal with and s. 179 of the Contract Act had no application.
That the delivery of the securities by the pledger :nade the
pledgee a trustee for him and he remained the owner subject to any
especial interest created in favour of the pledgee by the agreement
e.nd in a case, such as the present, where there was no question of
redeeming the securities by the pledger, there having been no over~
draft, or sale by the pledgee in enforcement of any especial interest,
as none had accrued to it, the pledgee bank had no right to deal
with the securities.
That the question whether the temedy of the pledger was by
way of a suit for damages for breach of contract or by way of a
criminal prosecution would depend on whether or not there was
mens rea and other elements constituting the offence.
That although the offence of criminal breach of trust presupposes an entrustment, such entrustment need not conform to all the
technicalities of the law of truat, and, consequently, in a case such as
the. present, where the accused had the necessary power and exercised
dominion over the securities and caused wrongful loss to the pledger
and wrongful gain to the pledgee by dealing with the securities, he
was guilty of the offence.
That the provisions of s. 79 of the Indian Penal Code were of
no a.va.il to him as it was never pleaded in his written statement nor
found by the eourts below that be was unaware of the fact that
there had been no overdraft at all.
That no sanction under s. 179 of the Companies Act was required for the prosecution.
The provisions of that section were of
a permissive character enabling the court Liquidator to do certain
things with the permission of the court and did not in any way
conttol the general law so as to i·estrict the power of the court to
take ecignisance of an offence or of the Police to initiate a prosecution or even of a private citizen to move the machinery of the
criminal courts to bring an offender to justice.
Basdeo Agarwalla v. King-Emperor, ([1945] F.

## Text

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S.C.R.
SUPREME COURT REPORTS
483
which the State authorities took against the appellants
in prosecuting them under section 9 of the Act was
unjustified as the slogans uttered by the appellants
did not under the circumstances set out above fall
within the mischief of that section.
Deprecating as we do the conduct of the appellants
in uttering these slogans, we cannot help feeling that
the prosecution has failed to establish that the appellants were guilty of the offence with which they had
been charged with the result that the appeal of the
appellants will be allowed, their convictions and sentences passed upon them will be set aside and they
will be set at liberty forthwith.
We only hope that
the observations made by us here will be an eyeopener to the appellants and they will behave themselves better in the future.
JASWANTRAI MANILAL AKHANEY
v.
THE STATE OF BOMBAY.
[VIVIAN BosE, JAGANNADHADAS and B. P. SINHA JJ.]
Criminal breach a/trust-Conviction of a banker, Validity a/-
Government Promissory Notes pledged with a bank to cover overdraft
-No overdraft by the pledgor-Managin(J Director actin(J on behalf
of all the Directors pledging the Notes to borrow money for the use of
the bank-Legality-Sale of the Notes by the creditors to realise their
dues and conseqitent inability of the bank to return them-Mens rea
-Sanction to prosecute by the Company Judge, if i·equired-Framing
of charge, if defective-Indian Penal Code (Act XL V of 1860 ), ss.
409, 79-Indian Contract Act (IX of 1872), s. 179-Indian Companies Act (VII of 1913), s.179-Code of Criminal Procedui·e (Act V
of 1898), ss. 221, 222, 223.
The appellant 'Was the Managing Director of a bank and held
a power of attorney to act on behalf of its Directors and authorising
him to borrow money on behalf of the bank. Certain Government
Promissory Notes were pledged with the bank by another bank to
cover an overdraft account up to a specified amount. There was,
however, no overdraft by the pledgor.
The pledgee bank was in a
precarious financial condition. The appellant pledged the securities
with a third party to get a loan for the bank's use and on its failure
63
1956
Kartar Singh
and others
v.
The State of
Punjab
Bhagwati J.
1956
May4
1956
Jaswantrai
Manilal Akhaney
v.
The State of
Bombay
484
SUPREME COURT REPORTS
[1956]
to repay the same on demand, the creditors sold the securities fo'r
realising their dues.
The pJedgee bank was thus no longer in a
position to return the securities on demand made by the pledger.
Information was lodged with the police at tha instance of the Official
Liquidator, appointed to wind up the bank and the appellant was
put up for trial under s. 409 of the Indian Penal Code.
Held, that the appellant was guilty of the offence charged and
the appeal must be dismissed.
Heldf,.rther, that in the absence of any overdraft by the
pledger, the pledgee bank acquired no interest in the securities which
it could deal with and s. 179 of the Contract Act had no application.
That the delivery of the securities by the pledger :nade the
pledgee a trustee for him and he remained the owner subject to any
especial interest created in favour of the pledgee by the agreement
e.nd in a case, such as the present, where there was no question of
redeeming the securities by the pledger, there having been no over~
draft, or sale by the pledgee in enforcement of any especial interest,
as none had accrued to it, the pledgee bank had no right to deal
with the securities.
That the question whether the temedy of the pledger was by
way of a suit for damages for breach of contract or by way of a
criminal prosecution would depend on whether or not there was
mens rea and other elements constituting the offence.
That although the offence of criminal breach of trust presupposes an entrustment, such entrustment need not conform to all the
technicalities of the law of truat, and, consequently, in a case such as
the. present, where the accused had the necessary power and exercised
dominion over the securities and caused wrongful loss to the pledger
and wrongful gain to the pledgee by dealing with the securities, he
was guilty of the offence.
That the provisions of s. 79 of the Indian Penal Code were of
no a.va.il to him as it was never pleaded in his written statement nor
found by the eourts below that be was unaware of the fact that
there had been no overdraft at all.
That no sanction under s. 179 of the Companies Act was required for the prosecution.
The provisions of that section were of
a permissive character enabling the court Liquidator to do certain
things with the permission of the court and did not in any way
conttol the general law so as to i·estrict the power of the court to
take ecignisance of an offence or of the Police to initiate a prosecution or even of a private citizen to move the machinery of the
criminal courts to bring an offender to justice.
Basdeo Agarwalla v. King-Emperor, ([1945] F.C.R. 93), distinguished and held inapplicable.
That the charge framed against the accused fulfilled the requirements of ss. 221 and 222(1) of the Code of Criminal Procedure and
•/
S.C.R.
SUPREME COURT REPORTS
485
as the particulars mentioned in the charge were sufficient to give
him notice of the matter he was being charged with it was not necessary to set out also the manner of the commission of the offence as
required by s. 223 of the Code.
CRIMINAL APPELLATE JURISDICTION: Criminal
Appeal No. 152 of 1954.
Appeal by Special Leave from the Judgment and
Order dated the 20th October 1953 of the Bombay
High Court in Criminal Appeal No. 652 of 1953 arising out of the Judgment a.nd Order dated the 9th
April 1953 of the Court of Presidency Magistrate,
19th Court, Bombay in Criminal Ca.se No. 12164/P of
1949.
H.J. Umrigar and R. A. Govind for the appellant.
Porus A. Mehta and R. H. Dhebar for P. G. Gokhale
for the respondent.
1956. May 4.
The Judgment of the Court was
delivered by
SINHA J.-This is an appeal by special leave
directed against the concurrent orders and judgments
of the courts below convicting the appellant under
section 409, Indian Penal Code and sentencing him to
rigorous imprisonment for three months and a fine of
Rs. 201 or in default, further six weeks rigorous imprisonment. As the appellant had been convicted
and sentenced for a similar offence in another. case
tried by the same Presidency Magistrate, 19th Court,
Esplanade, Bombay, he directed the sentence in this
case to run concurrently with the sentence in the
other case. The charge against the accused in the
trial court is in these terms:-
"The Accused is charged under section 409 of the
Indian Penal Code for committing criminal breach
of trust in respect of property to wit3% Government
Promissory Loan Notes 1966-68 of the face value of
Rs. 50,000 and 2!% Government Promissory Notes
1961 of the faee value of Rs. 25,000 in or about
February to .May 1949 entrusted to him in his capacity as Managing Director of the Exchange Bank of
1956
Jaswantrai
Manil•l Akhane y
v.
The State of
&mbay
7956
Jaswantrai
Manilal Akhaney
v.
The State of
Bombay
Sinha].
486
SUPREME COURT REPORTS
[1956]
India and Africa Ltd. and belonging to the Cambay
Hindu Merchants Co-operative Bank. (Detailed
charge is separately framed)".
The appellant at all material times was the Man~g
ing Director of the Exchange Bank of India and
Africa Ltd., with its head office at Bombay, which
hereinafter will be referred to as the Exchange Bank.
He held a power of attorney to act as the Managing
Director on behalf of the Directors of the Company.
By that power the accused was invested with the
authority to borrow money on behalf of the Bank.
In 1944 the Cambay Hindu Merchants Co-operative
Bank at Cambay, which hereinafter will be referred
to as the Co-operative Bank, had opened a current
account with the Exchange Bank. On instructions
from the Co-operative Bank, the Exchange Bank
purchased in August 1946 securities worth Rs. 25,000
in its own name with money belonging to the Co-operative Bank and the securities were kept with the
Exchange Bank as a cover for overdraft. In March
1948 two further lots of Government security of Rs.
25,000 each of the value of Rs. 50,000 were purchased
likewise and left with the Exchange Bank for the
same purpose. On the 14th May 1948 the two banks
entered into a contract evidenced by three documents
to be noticed in detail hereinafter. Shortly stated,
the Exchange Bank agreed to grant the Co-operative
Bank credit for overdraft up to a limit of Rs. 66,150
and as a security for the overdraft the Government
securities of the value of Rs. 75,000 already in the
custody of the Exchange Bank was pledged to the
latter. These securities of the face value of Rs. 75,000
will hereinafter be referred to as "the securities".
But it appears that the Co·operative Bank had no
occasion to operate on the overdraft acconn t un ti!
the 28th February 1949 when the crucial event
happened, namely, the Exchange Bank finding itself
in an embarrassed financial position took a loan from
the Canara Bank of one lakh of rupees by pledging
the securities as also other securities with which we
are not concerned in this case.
On the 24th April
1949 the Exchange Bank paid off the dues of the
-
-·
•
S.C.R.
SUPREME COURT REPORTS
487
Canara Bank by taking a fresh loan of the same
amount of one lakh from Messrs Merwanji Dalal &
Co. and pledging the same securities as had been
pledged to the Canara Bank. On the 28th April 1949
Messrs Merwanji Dalal & Co. demanded back their
money by the forenoon of the day following. As the Exchange Bank could not pay the amount as demanded,
the pledgees aforesaid sold those securities including
the securities belonging to the Co-operative Bank, for
realising their dues, on the 3rd May 1949.
In the meantime, in answer to a letter from the
Co-operative Bank to the Exchange Bank asking for
a certificate for the securities held by the latter on
behalf of the former in the overdraft account, the
Exchange Bank issued the certificate dated the 1st
April 1949 to the effect that at the close of business on
the 31st March 1949 it held Government of India
securities of the total value of Rs. 75,000 as security
against the overdraft. facilities granted to the Co-operative Bank and that there was no overdraft against
the said securities on that date. Subsequently, on the
29th April 1949 the Co-operative Bank wrote to
the Exchange Bank asking the latter to hand over
securities of the face value of Rs. 50,000 to the
Central Bank. The Central Bank also on behalf of
the Co-operative Bank made a similar demand and
as the Exchange Bank did not comply with that requisition, the Central Bank informed the Co-operative
Bank by a letter dated the 3rd May 1949 that the
securities had not been handed over to the Central
Bank as directed by the Co-operative Bank. The
Co-operative Bank then wrote to the Reserve Bank
for stoppage of the securities of the value of
Rs. 25,000. It became clear by then that the Exchange Bank was not in a position to return the securities to the owners, that is to say, the Co-operative
Bank.
In spite of the best efforts of the appellant as the
Managing Director of the Exchange Bank, to stave
off the crisis by borrowing money from different
sources, the run on the bank became so great that
the directors applied for and obtained from the Com1956
J asu·antrai
Mani/al Akhaney
v.
The State of
Born bay
Sinha J.
1956
Jaswantrai
Manilal Akhaney
v.
The State of
Bombay
Sinha J,
488
SUPREME COURT REPORTS
[1956]
pany Judge of the Bombay High Court a moratorium
of 15 days. On the 18th May 1949 a provisional liquidator was appointed in respect of the Exchange Bank
on a creditor's application and on the 24th June 1949
the Official Liquidator was appointed to wind up the
bank. On the 25th June 1949 one M. N. Raijee as
agent of the Official Liquidator lodged information
with the police charging the appellant with breach
of trust in respect of a number of securities including
the securities belonging to the Co-operative Bank.
On the 31st October 1949 a charge-sheet was submitted by the police under section 409, Indian Penal
Code against the appellant in respect of the securities
of the face value of Rs. 75,000 belonging to the Cooperative Bank. On the 4th April 1952 the charge
as quoted above was framed against the appellant.
The delay of about two and a half years in placing
the appellant on trial is attributable to the fact that
at the request of the accused the trial in respect of
this charge was stayed pending the disposal of the
other case against him.
At the trial the prosecution examined the Manager
of the Co-operative Bank as P.W. I. He proved the
transactions between that Bank and the Exchange
Bank. The second witness for the prosecution was
a partner in the firm of Messrs Merwanji Bomanji
Dalal during the material time. He proved the transaction of the loan by his firm to the Exchange Bank of
one lakh of rupees on the pledge of the securities belonging to the Co-operative Bank, as also other securities. He deposed to the fact that it was the appellant who finalised the transaction on behalf of the
Exchange Bank. He also proved that in default of
payment by the Exchange Bank on demand by his
firm, it sold the securities including the securities in
question and realised the dues from the Bank from
the sale proceeds of securities of the value of one lakh
of rupees. The third witness for the prosecution was
the Chief Accountant of the Exchange Bank who
functioned as such till the 2nd May 1949 when the
Bank closed down.· He also had a power of attorney
from the Bank to act jointly with another person
S.C.R.
SUPREME COURT REPORTS
489
with a similar power of attorney. According to this
witness, the appellant as the Managing Director
exercised the powers of borrowing, raising money,
purchasing, selling and pledging of bonds, scrips and
other forms of securities on behalf of the Bank and
its constituents during the relevant period and that
no one else exercised those powers. He also testified·
to the fact that there was a crisis in the affairs of the
Bank from about the middle of February 1949 and
that there was a rush on the Bank which continued
till it closed down. He also proved the fact that
during the material time the Co-operative Bank had
a credit balance in its favour and that there was no
overdraft by that Bank from the Exchange Bank.
He proved Exhibits E, F and G which are the documents evidencing the contract between the two banks
in respect of the pledge of the security. He corroborated the previous witness that it was the appellant
who negotiated and finalised the loan of one lakh of
rupees from the Canara Bank and that the securities
in question along with others had been pledged to the
Canara Bank. It was he who had endorsed the
securities to the Canara Bank. He stated that the
Exchange Bank had submitted to the Canara Bank a
declaration to the effect that the said securities belonged absolutely to the Exchange Bank. As there
was a heavy rush of depositors on the bank, the loan
from the Canara Bank was taken to satisfy the demand of the depositors. The most important witness
examined on behalf of the prosecution is P.W. 4,
Ganpati Venkatrao Kini. He was an accountant
in the Exchange Bank during the relevant period.
He was also working with the Official Liquidator of
the Bank after its liquidation was ordered by court.
Like the previous witness, he also had a power of
attorney to act only in conjunction with another person holding a similar power. He supports the previous witness in saying that the power of borrowing
money or of purchasing, selling or pledging or repledging securities was exercised by the appellant and
by no other person on all material dates. He also
corroborates the previous witness and states that
1956
.]asu'antrai
Manila/ Akhaney
v.
The State of
Bombay
Sinha J.
1956
Jaswantrai
Jlanilal Akhqney
v.
Tlic State of
Bo1nbay
SinliaJ.
490
SUPREME COURT REPORTS
[1956]
there was a crisis in the bank from about the middle
of February 1949 and that there was a heavy rush on
the bank from that time till it closed down. He also
proves Exs. E, F and G and states that from the 14th
May 1948 when these documents were executed between the two banks till the 2nd May 1949 when the
Exchange Bank closed its doors there was no overdraft by the Co-operative Bank which always had a
credit balance. He also gives the details of the
transaction of tho loan of one lakh between the
Exchange Bank and the Canara Bank and the details
of the securities pledged by way of security for that
loan. He makes the following very significant statement:-
"I had handed over the two securities belonging
to the Cambay Co-operative Bank to the accused for
being handed over to the Canara Bank against the
loan.
The accused actually asked me for these
securities and I handed them to the accused''.
To a court question as to why he did not bring it to
the notice of the appellant that the securities in
question belonged to the Co-operative Bank and not
to the Exchange Bank, his answer is in these
words:-
" In fact, the accused himself told me to bring
securities pleged by the Cam bay Co-operative Bank
with the Exchange Bank".
He also proves Ex. L, which is a very importaut
document in this case and proves that it was signed
by the accused.
He further states that the declaration in that document that the securities represented
the Exchange Bank's investments was not correct.
He also makes detailed statements as to the different
kinds of interest which the appellant had in the Exchange Bank. He was drawing Rs. 2,500 as monthly
salary as the Managing Director. He was also drawing a salary of Rs. 1,000 from the Union Life Assurance Co. Ltd., as its Managing Director. The Insurance Company and its branches had a current account
with the Exchange Bank and hB.d advanced to the
latter six to seven lakhs of rupees as "call deposits".
The appellant was also connected with Messrs L. A.
1
S.C.R.
SUPREME COURT REPORTS
491
Stronach Ltd., Advertising Agents, which had been
1956
given overdraft facilities by the Exchange Bank.
.
The appellant was also getting Rs. 2,000 per month M 1~1 sw
1 Aankh#ra•
f
h
f
"d Ad
. .
A
Th
ant a
aney
as salary rom t ea oresa1
vertismg gents.
e
v.
appellant and his wife were the principal shareholdThe state of
ers in Akhaney & Sons Ltd., who were the Secretaries
Bombay
and Treasurers of the Indian Overseas Airlines. The
Exchange Bank had advanced to the aforesaitl Indian
Overseas Airlines a loan of one crore and ten lakhs
of rupees and Messrs Akhaney & Sons Ltd. aforesaid
were getting a remuneration of Rs. 2,500 per month
from the Indian Overseas Airlines Ltd. It would thus
appear that the appellant along with his wife in one
way or another was getting about Rs. 8,000 per mensem as remuneration from the different companies
referred to above which were closely associated with
one another from the financial point of view and that
the appellant was the chief person concerned with
them and the connecting link between them. It was
naturally his interest to see that the Exchange Bank
continued its existe·nce as long as could be arranged
even by borrowing large sums of money when there
was already a run on the bank.
It is in the background of all these facts and circumstances that the
appellant's acts of commission and omission had to
be judged.
The other four witnesses, P.Ws. 5 to 8
are more or less formal witnesses in the sense that
they have proved certain documents and letters which
need not be noticed. The evidence of P.W. 2 had to
be set aside as he was not available for cross-examination after charge, being out of the country.
The appellant's .defence is disclosed in a long
written statement running into twenty paragraphs
and seven closely typed pages submitted on the 3rd
October 1952. Shortly stated, it is to the effect that
the charge framed against him is bad in law and extremely vague; that the vagueness of the charge had
"considerably handicapped" hie defence, that the prosecution had not been fair in that it had not examined the first informant, M. N. Raiji, that if he had
been examined by the prosecution, the appellant
would have shown from the records in· his possession
64
Sinha J.
1956
J aswantrai
Manilal Akhane;y
v.
The State of
Bombay
Sinha/.
492
SUPREME COURT REPORTS
(1956]
that the Co-operative Bank had not suffered any loss
and that the Bank in the hands of the Liquidator had
more than sufficient funds to pay the dues of the former; that the prosecution had not been launched with
the sanction of the Company Judge who was in seisin
of the liquidation proceedings ih respect of the Exchange Bank and that.therefore the provisions of sections 179 and 237 of the Indian Companies Act had
not been complied with; that the securities in question had not been entrusted to the appellant but to
the Exchan~e Bank, if at all there was any entrustment, and that as a matter of fact and law, the Exchange Bank had not been entrusted with the securities, that the Exchange Bank "could legally deal
with the securities in any manner it liked", as provided in the documents, Exs. E, F and G, between
the two banks; that the sub-pledging of the securities
with the Canara Bank or with Messrs Merwanji
Bomanji Dalal was "perfectly within the four corners
of the law", and that the essential ingredients of an
offence under section 409, Indian Penal Code had not
been made out. Grievance was also sought to be made
of the fact that Inspector Milburn who had investigated the case had not been called as ~ prosecution
witness, with the result that the appellant had been
deprived of the right of challenging the prosecution
evidence with reference to the police diary.
The learned Magistrate aft~r a very fair and full
examination of the evidence in the case and the points
raised by the appellant in his defence came to the
conclusion that the appellant was guilty of the offence
of criminal breach of trust under section 409, Indian
Penal Code and passed a lenient sentence, as stated
above, in view of the consideration that "not a pie
went to the pocket of the accused", and that "the
accused had not taken up any dishonest defence".
The learned Magistrate held that the charge as framed
was not vague in view of the provisions of section 222,
Criminal Procedure Code, with special reference to the
terms of sub-section (2) of that sectiol'.. On the question of the non-examination of the first informant,
M. N. Raiji, and of the investigating police officer,
S.C.R.
SUPREME COURT REPORTS
493
the learned Magistrate observed that they were formal
witnesses inasmuch as the facts of the case were not
in dispute. Furthermore, the court .observed that if
the accused or his lawyer who defended him at the
later stage of the prosecution,• had applied to the
court for their being examined, they could have been
called as witnesses and subjected to cross-examina,tion
by the accused. But no such application had been
made. As regards want of sanction of the Company
Judge, he held that section 179 of the Indian Companies Act had no application to the facts of the present case, as it was not a prosecution under the Companies Act and that therefore no such sanction as is
contemplated by that section was necessary. Dealing
with the appellant's contention that there was no
entrustment within the meaning of section 405, Indian
Penal Code the learned Magistrate observed that the
accused held delegated powers from the Board .of
Directors and he held the property in trust on behalf
of the Directors of the Exchange Bank. He further
held that the contract of pledge dated the 14th May
1948 between the two banks did not vest any right
in the Exchange Bank absolutely to deal with the
securities and that at any rate, the Exchange Bank
could not de{l.l with the securities so long as the Cooperative Bank had not taken an overdraft from the
former. In dealing with the question whether the
appellant had dealt witl,l the securities dishonestly,
he held that in all the circumstances of the case
there was no doubt that wrongful loss was caused
to the Co-operative Bank and wrongful gain not
to the accused personally but to the Exchange
Bank which he represented during the transactions
in question.
On appeal to the Bombay High Court, a Division
Bench of that court dismissed the appeal substantially agreeing with the findings of the trial court.
Dealing with a new point raised before the appeal
court, namely, that the appellant was under a mistake of fact or law as to the indebtedness of the Cooperative Bank to the Exchange Bank or as to its
powers to deal with the security, the High Court held
1956
J aswantraf
Manila/ Akha11e :1
v,
The Stale of
Bomba;y
Sinha].
1956
Jaswantrai
Mani/al Akllaney
v.
The State oj
Bo111bay
Sinha J.
494
SUPREME COURT REPORTS
(1956]
that there was no possibility of the appellant having
made any mistake of fact in good faith. The court
also pointed out that the appellant himself had not
raised this plea of mistake either about the facts of
the case or about arry doubtful question of Jaw. The
court also pointed out the declaratfons made by the
appellant on behalf of the Exchange Bank that the
securities belonged absolutely to the bank and represented its investments-statements which he knew
were false.
While dealing with the appeal on the
question of sentence, the High Court pointed out that
there was good evidence to support the inference that
the appellant had been actuated by motives of personal benefit also. In that view of the matter the
High Court maintained the conviction and the sentence passed by the trial Magistrate. The appellant
then moved the High Court for a certificate that the
case was a fit one for appeal to this Court. The certificate was refused by that court. Thereafter the
appellant moved this Court and obtained special leave
to appeal.
In support of the appeal the learned counsel for the
appellant has raised a number of questions of law and
at the forefront of his argument contended that both
in law and on a proper construction of the contract
between the two banks the appellant was fully entitled to pledge the securities as long as the overdraft
agreement subsisted, irrespective of whether or not
there was an actual overdraft by the Co-operative
Bank on the date of the pledge, that is to say, on the
28th February 1949.
Examining the position with reference to the contract between the two banks, we find that Exhibits
E, F and G, all dated the 14th l\lay 1948, are parts
of the same transaction and evidence the terms of the
contract between them. Ex. Eis a promissory note
executed by the Co-operative Bank in favour of the
Exchange Bank for the sum of Rs. 66,150 with
interest at three per cent. per annum with half
yearly rests. Ex. F is a letter addressed by the Cooperative Bank to the Exchange Bank enclosing Ex.
E, and Ex. G is the bond pledging all marketable
-
-
S.C.R.
SUPREME COURT REPORTS
495
securities and goods to the Exchange Bank in consideration of its promise to grant credit for overdraft
limited to the amount aforesaid in favour of the Cooperative Bank from time to time with interest at
three per cent. per annum as aforesaid. The significant portion of the bond is in these terms:-
" ............................ and we agree and undertake that
in the event of our failure to maintain the marg,in on
the said movable property marketable securities and
goods in the manner hereinafter provided or failing
repayment on demand to you by us of the amount of
such advance or credit with interest cost charges and
expenses_ as aforesaid you shall be entitled, but not
bound, to sell or otherwise dispose of all or any of the
said movable property marketable securities and goods
by public auction or private contract in such manner
and upon such terms and subject to such conditions
as you may think fit without any reference to us or
obtaining our consent, and the proceeds of such sale
or disposal shall be applied first in payment of all
costs charges and expenses of and incident to such
sale or disposal and the enforcement of the pledge
and charge in your favour hereby created, secondly
in repaying the amount of such advance or credit
with interest as aforesaid and all costs charges and
expenses incurred by you in relation thereto not
otherwise met including loss in exchange (if any) and
all other debts and monies however due to ·you by us
and lastly in payment to us of the surplus if any
thereafter remaining, declaring as it is hereby expressly provided agreed and declared that this shall
be continuing security to cover the amount of any
advance or credit which you have allowed to us or
may from time to time ailow us with interest costs,
charges and expenses and all other debts and monies
due as aforesaid ............... ".
Reading Exhibits E, F and G together, it is clear that
the securities of the face value of Rs. 75,000 were
pledged to the Exchange Bank as security for overdraft up to the limit of Rs. 66,150 for which the Cooperative Bank had given the promissory note to the
Exchange Bank. It was further stipulated that in
19.56
Jaswantrai
Mani/al Akhaney
v.
The State of
Bombay
Sinha J.
1956
Jaswantrai
ManUal Akhaney
v.
The State of
&mbay
Sinha}.
496
SUPREME COURT REPORTS
(1956]
the event of the pledgor making a default in payment
on demand of the amount advanced by way of overdraft with outstanding interest it may be realised by
the Exchange Bank by sale of those securities and
after satisfying the pledgee's dues against the pledgor,
if there was any outstanding amount the surplus of
the sale proceeds shall be paid back to the pledgor.
Thus it is clear that according to the terms of the
contract the Exch'ange Bank was not entitled, as
contended on behalf of the appellant, to sell the
securities even though there may not have been any
outstanding dues from the Co-operative Bank. The
securities were to be kept by the Exchange Bank
-charged with the payment of such amount as may
from time to time have been advanced or be advanced
under the overdraft arrangement. But that charge
was not an absolute one without reference to the state
of accounts between the two banks; in other words,
there would be a charge only when there was an adverse balance against the Co-operative Bank. We
know that at all material times the Co-operative
Bank had not drawn any sum from the Exchange
Bank in pursuance of the agreement referred to above.
The right of the Exchange Bank to deal with the
securities under the agreement would arise only on the
happening of certain events, namely, that the pledgor
either had failed to maintain the proper margin or
had made a default in repayment of the outstanding
amount on demand by the Exchange Bank. So long
as those contingencies did not arise,-and it is nobody's case that any of those contingencies had
arisen,--the pledgee bank had no right to deal with
the securities by way of pledge, sub-pledge or assignment. In this connection our attention was invited
to the provisions of section 179 of the Indian Contract
Act in support of the contention that as the securities had been agreed between the two banks to be a
cover for overdraft not exceeding Rs. 66,150, up to
that amount the pledgee bank had an interest in
those securities which it could have dealt with. It
was further argued that as there was- nothing to show
that the appellant bad dealt with the securities for
•
..
•
S.C.R.
SUPREME COURT REPORTS
497
a larger amount than that, 4e. could not be said to
have contravened the terms of the contract.
In our
opinion, there is no substance in this contention. Section 179 predicates that the pledgor has a limited
interest which he can deal with and his transaction
to that extent would be valid. If the Co-operative
Bank had as a matter of fact operated upon the overdraft account and had drawn any sum within the
limit aforesaid, the Exchange Bank would have an
interest pro tanto in those securities and might then
have been entitled to pledge or sub-pledge the securities with a third party. But so long as there was no
overdraft by the pledgor, the pledgee had no such
interest as it could in its turn pledge or sub-pledge to
a third party. Furthermore, it is clear from the narrative of events given above that the appellant dealt
with the securities with third parties on the footing,
after an express declaration had been made by him,
that those securities were the absolute property of
the Exchange Bank. We are not here concerned with
the question of the extent of interest acquired by such
third party. We are only concerned with determining the legal position as between the two banks, the
Bxchange Bank being represented by its Managing
Director, the appellant. Hence there is no difficulty
in holding that on the terms of the contract between
the two banks the appellant was not entitled to
transfer any interest in those securities and if he did
so, he did it in contravention of the terms of the contract.
We will now deal with the legal position, apart
from the terms of the contract. On the facts stated
above the Exchange Bank had become the bailee in
respect of the securities. The securities had been
delivered by the Co-operative Bank to the Exchange
Bank for the express purpose, as disclosed in the contract set out above, that they shall be disposed of in
accordance with the terms contained in Exhibit G
set out above. By the very fact of the delivery of
the securities to the bailee the latter became a trustee
in terms of the contract, not for all purposes, but only
for the limited purpose indicated by the agreement
1956
Jaswantrai
Manila/ Akhat1ey
v.
Tlte State of
Bombay
Sinha J.
1956
Jasu:antrai
Manilal Akhancy
v.
The State of
Hon1bay
Sinha J.
•
498
SUPREME COURT REPORTS
[1956)
between the parties. The pledgor has in the present
case only transferred his possession of the property
to the pledgee who has a specia,J interest in the property of enforcing his charge for payment of an overdraft, if any, whereas the property continues to be
owned by the pledgor.
The special interest of the
pledgee comes to an end as soon as the debt for which
it was pledged is discharged. It is open to the pledgor
to redeem the pledge by full payment of the amount
for which the pledge had been made at any time if
there is no fixed period for redemption, or at any time
after the date fixed and such a right of redemption
continues until the thing pledged is lawfully sold.
Hence the Co-operative Bank in this case could have
asked for a return of the securities at any time, because there never was any overdraft. As the pledge
had been terminated neither by redemption, nor by
a lawful sale on the happening of such contingencies
as the parties contemplated in their agreement or the
law allowed, the securities continued to be the property of the Co-operative Bank and the Exchange
Bank, or the appellant as its Managing Director, had
no right to deal with them.
It was next contended, alternatively, that assuming that the Exchange Bank had dealt with the
securities in contravention of the terms of the agreement, the appellant had, as representing the bank,
only committed a breach of contract, the remedy for
which was a suit for damages and not a criminal prosecution. This argument assumes that the same set
of facts cannot give rise both to a civil liability and
a criminal prosecution. It is manifest that such an
argument in its bald form cannot be acceptable. If
there is no mens rea, or if the other essential ingredients of an offence are lacking, the same facts may
not sustain a criminal prosecution, though a civil
action may lie.
We have therefore to examine whether or not there was mens rea in this case or whether
the necessary element of a criminal offence have been
made out.
It has been contended that no offence under section
409, Indian Penal Code has been brought home to
the appellant for the reasons,
(1)
that there
'
S.C.R.
SUPREME COURT REPORTS
499
was no entrustment, (2) that there was no mens rea,
and (3) that there was no dishonesty on the part of
the appellant. For an offence under section 409,
Indian Penal Code, the first essential ingredient to be
proved is that the property was entrusted. It has
been argued that in this case there was no such entrustment as is contemplate'd by that section; and
that the securities were pledged with the Exchange
Bank by the Co-operative Bank which was in the
position of a debtor to the former. The contention
is that the parties never contemplated the creation of
a trust in the strict sense of the term. But when
section 405 which defines "criminal breach of trust"
speaks of a person being in any manner entrusted
with property, it does not contemplate the creation
of a trust with all the technicalities of the law of trust.
It contemplates the creation of a· relationship whereby the owner of property makes it over to another
person to be retained by him until a certain contingency arises or to be disposed of by him on the happening of a certain event. The person who transfers
possession of the property to the second party. still
remains the legal owner of the property and the person in whose favour possession is so transferred has
only the custody of the property to be kept or disposed of by him for the benefit of the other party, the
person so put in possession only obtaining a special
interest by way of a claim for money advanced or
spent upon the safe keeping of the thing or such other
incidental expenses as may have been incurred by
him. In the present case the Co-operative Bank entrusted the Excqange Bank with the .securities for
the purpose of keeping them as a security for the overdrafts if and when taken by the former. In law those
securities continued to be the property of the Co-operative Bank and as it never borrowed any money
from the Exchange Bank, the latter had no interest
in· those securities which it could transfer in any way
to a third party so fai; as the two banks are concerned. The entrustment was to the Exchange Bank
itself. But it being a non-natural person, its business
had to be transacted by someone who was authorised
6~
1956
Jaswantrai
Manila/ Akha11e~
v.
The State of
Bombay
SinhaJ,
1956
Jaswantrai
Manilal Akhancy
v.
The State of
Bombay
Sinha}.
500
SUPREME COURT REPORTS
(1956)
to do so on its behalf. The appellant held the power
of attorney on behalf of the directors of the bank to
transact business on behalf of the bank. In that capacity the appellant had dominion over the securities.
Hence the appellant can be said either to have been
entrusted with the property in a derivative sense or
to have dominion over ·the securities as a banker;
and thus in either case, the first essential condition
for the application of section 409, Indian Penal Code
is fulfilled.
On the question of mens rea, it has to be determined
whether or not the appellant dishonestly disposed
of those securities in violation of any of the terms of
the agreement aforesaid. As alr.eady indicated, the
appellant did dispose of these securities in violation
of the terms of the contract between the two banks.
But still the question remains whether he did so dishonestly; in other words, whether when disposing of
those securities the appellant had the intention of
causing wrongful gain to the Exchange Bank or
wrongful loss to the Co-operative Bank. In our
opinion, he intend·ed both and, as a matter of fact,
he caused wrongful loss to the pledgor bank and
wrongful gain to the pledgee bank. The Exchange
Bank·raised money on those securities which it was
not entitled to do and the Co-opera.tive Bank was
deprived of those securities, even though not for all
times. It is settled law that a deprivation even for
a short period is within the meaning of the expression.
If he disposed of those securities with the intention of
causing wrongful loss to the one and wrongful gain to
the other, there can be no question.