1. Criminal conspiracy and criminal breach of trust involving diversion of insurance company funds to a private entity through fictitious securities transactions and falsification of accounts. (Para 1 , 16 , 17 , 19 , 31 )
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1962 Supreme(SC) 134
SUPREME COURT OF INDIA
K.Subba Rao : Raghubar Dayal : S.R.Dass
R.K.Dalmia
Versus
Delhi Administration
Case No. : 7 , 8 , 9 of 1961
Date of Decision : 4/5/62
Advocates Appeared: Chaddah Prem Nath : Chaudhuri K.R. : Daphtary C.K. : Dapthary C.K. : Dhebar R.H. : Foot Dingle : Goyal A.N. : Gupta Madan Gopal : Jauhari G.H. : Kohli R.L. : Mehta R.L. : Narain Bishan : Prem D.R. : Sikri S.M.
Advocates:
A.N.GOYAL, BISHAN NARAIN, C.K.DAFTARY, D.R.Prem, DINGLE FUT, G.H.JAUHARI, K.R.CHAUDHARY, MADAN GOPAL GUPTA, PREM NATH CHADDAH, R.H.Dhebar, R.L.Kohli, R.L.MEHTA, S.M.Sikri
A.N.GOYAL, BISHAN NARAIN, C.K.DAFTARY, D.R.Prem, DINGLE FUT, G.H.JAUHARI, K.R.CHAUDHARY, MADAN GOPAL GUPTA, PREM NATH CHADDAH, R.H.Dhebar, R.L.Kohli, R.L.MEHTA, S.M.Sikri
The court held that 'property' under Section 405 IPC includes chose in action (bank funds) and 'agent' under Section 409 IPC includes company directors. It also ruled that falsifying accounts to conceal a prior fraud constitutes an intent to defraud under Section 477A IPC.
Headnote:(A) Indian Penal Code - Sections 120-B, 405, 409, 477A - Code of Criminal Procedure - Sections 233, 531, 537 - Insurance Act - Section 33 - Constitution of India - Article 20(3) - Criminal breach of trust - Definition of 'property' and 'agent' - Jurisdiction in conspiracy cases - Falsification of accounts - The term 'property' under Section 405 IPC is to be given its widest meaning and includes a chose in action, such as funds in a bank account (Paras 47, 60). Dominion over property exists if a person has the power to operate an account by virtue of their position, even if they do not personally exercise that power or provide specimen signatures to the bank (Para 61). The term 'agent' in Section 409 IPC is not restricted to professional agents but includes any person entrusted with property in the way of their business, including company directors (Paras 96, 101).
(B) Jurisdiction - A court having jurisdiction to try an offence of conspiracy also has jurisdiction to try overt acts committed in pursuance of the conspiracy outside its territorial jurisdiction (Para 36).
(C) Falsification of Accounts - Falsifying records to conceal a previously committed fraudulent or dishonest act constitutes an intent to defraud under Section 477A IPC; the concealment of an already committed fraud is itself a fraud (Paras 332, 333).
(D) Admissibility of Confession - A confession made to a statutory investigator is admissible if voluntary, and the desire to soften the attitude of authorities or avoid consequences does not render it involuntary or coerced under Article 20(3) of the Constitution (Paras 274, 290).
Facts of the case:
The Chairman and an agent of an insurance company conspired to divert company funds to a private company to cover losses from share speculation. This was achieved through fictitious purchases of securities via a shell company, where funds were paid out of the insurance company's bank account but securities were never delivered. Accounts were subsequently falsified to hide the diversion of funds.
Findings of Court:
The court found that the accused acted with dishonest intention to cause temporary loss to the insurance company for the gain of the private company. The evidence, including telephonic records, the conduct of the accused, and a voluntary confession, established the conspiracy and the misappropriation of funds.
Issues: Whether bank funds constitute 'property' under the IPC; whether company directors are 'agents' under Section 409 IPC; whether the trial court had jurisdiction over acts committed outside its territory; and whether the confession made to a statutory investigator was voluntary and admissible.
Ratio Decidendi: The court held that 'property' includes chose in action and 'agent' includes those acting in their business capacity. It reaffirmed that jurisdiction over a conspiracy extends to its overt acts. It further ruled that concealing a fraud by falsifying accounts is a fraudulent act. A confession is voluntary unless obtained through threat, inducement, or promise from a person in authority.
Result: Appeals dismissed.
Legal Category Hierarchy
- crime and sentencing
- practice and procedure
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constitutional law
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fundamental rights
- right against self-incrimination (Para 290)
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fundamental rights
Table of Contents
2. Challenges to territorial jurisdiction, interpretation of property and agent under IPC, admissibility of confessions, and the nature of intent to defraud in account falsification. (Para 32 , 43 , 44 , 85 , 251 , 331 )
3. Analysis of the wide meaning of property, the scope of agency in business, the voluntariness of confessions, and the nature of fraudulent concealment. (Para 36 , 47 , 48 , 88 , 96 , 274 , 333 )
4. Property under Section 405 IPC includes chose in action; agent under Section 409 IPC includes those entrusted in the course of their business duties. (Para 60 , 101 )
5. Appeals dismissed and convictions for criminal conspiracy, criminal breach of trust, and falsification of accounts upheld. (Para 339 , 342 )
6. Does the term property under Section 405 of the Indian Penal Code include funds held in a bank account?
Yes. The court held that property should be given its widest meaning and is not restricted to movable property. It includes a chose in action, such as funds in a bank account, provided the property can be subject to the acts covered by the section. (Para 47 , 48 , 54 , 58 , 60 )
7. Must a person be a professional agent to be convicted under Section 409 of the Indian Penal Code?
No. The expression in the way of his business means the property is entrusted in the ordinary course of duty, habitual occupation, or profession. It applies to anyone who is an agent of another and is entrusted with property in the course of those duties. (Para 88 , 91 , 96 , 101 )
8. Can a court try overt acts committed outside its territorial jurisdiction if they are part of a criminal conspiracy?
Yes. A court having jurisdiction to try the offence of conspiracy also has jurisdiction to try offences constituted by overt acts committed in pursuance of that conspiracy, even if those acts occurred beyond its territorial jurisdiction. (Para 36 )
9. Does the falsification of accounts to conceal a previously committed fraud constitute an intent to defraud under Section 477A of the Indian Penal Code?
Yes. The concealment of an already committed fraud is itself a fraud. Fabricating documents to prevent a party from discovering a previous fraud, thereby allowing the perpetrator to retain illicit gains, constitutes an intent to defraud. (Para 333 )
10. Is a confession made to a government-appointed investigator admissible if the accused believes it will soften the authorities' attitude?
Yes. A confession is voluntary unless made under threat, inducement, or promise from a person in authority. Making a statement to benefit oneself or soften the attitude of authorities does not render the confession involuntary or coerced. (Para 274 , 290 )
RAGHUBAR DAYAL,
(1) THESE three appeals are by special leave. Appeal No. 7 of 1961 is by R. K. Dalmia. Appeal No. 8 of 1961 is by R.P.Gurha. Appeal No. 9 of 1961 is by G.L.Chokhani and Vishnu Prasad. All the appellants were convicted of the offence under s. 120 read with s.409 Indian Penal Code, and all of them, except Vishnu Prasad, were also convicted of certain offences arising out of the overt acts committed by them. Dalmia and Chokhani were convicted under s. 409 Indian Penal Code Chokhani was also convicted under s. 477A read with s. 110, I. P. C. Gurha was convicted under s. 477A I. P. C.
(2) TO appreciate the case against the appellants, we may first state generally the facts leading to the case. Bharat Insuirance Company was incorporated in 1896. In 1936, Dalmia purchased certain shares of the company and became a Director and Chairman of the company. He resigned from these offices in 1942 and was succeeded by his brother J. Dalmia. The head office of the Bharat Insurance Company was shifted from Lahore to 10, Daryaganj, Delhi. in 1947. Dalmia was co-opted a Director on 1/03/1949 and was again elected Chairman of the company on 19/03/1949 when his brother J. Dalmia resigned.
(3) R. L. Chordia, a relation of Dalmia and principal Officer of the Insurance Company, was appointed Managing Director on 27/02/1950. Dalmia was appointed Principal Officer of the company with effect from 20/08/1954. He remained the Chairman and Principal Officer of the Company till 22/09/1955. The period of criminal conspiracy charged against the appellant is from August 195 4/09/1955. Dalmia was therefore, during the relevant period, both Chairman and Principal Officer of the Insurance Company.
(4) DURING this relevant period, this company had its current account in the Chartered Bank of India, Australia and China Ltd. (hereinafter called the Chartered Bank) at Bombay. The Company also had an account with this bank for the safe custody of its securities the company also had a separate current account with the Punjab National Bank, Bombay.
(5) AT Delhi, where the head office was, the company had an account for the safe custody of securities with the Imperial Bank of India, New Delhi.
(6) EXHIBIT P-785 consists of the Memorandum of Association and the Articles of Association of the Bharat Insurance Company. Articles 116 and 117 deal with the powers of the Directors.
(7) EXHIBIT P-786 is said to be the original Byelaws passed by the Directors on 8/09/1951. The pages are signed by K.L. Gupta, who was the General Manager of the company during, the relevant period, and not by Dalmia the Chairman, as De should have been the case in view of the resolution dated 8/05/1951. The genuineness of this document is not, however, admitted.
(8) EXHIBITS P-15 and P-897 are said to be copies of these Bye- laws which were sent to Shri K. Annadhanam (Chartered Accountant, appointed by the government of India on 19/09/1955, to investigate into the affairs of the Bharat Insurance Company under s. 33(1) of the Insurance Act) and to the Imperial Bank of India, Now Delhi, respectively, and the evidence about their genuineness is questioned.
(9) BYE-LAW 12 deals with the powers of the Chairman. Clause (b)) thereof empowers the Chairman to grant loans to persons with or without security, but from 30/08/1954, the power was restricted to grant of loans on mortgages. Clause (e) empowers the Chairman to negotiate transfer buy and sell government Securities and to pledge, indorse, withdraw or otherwise deal with them.
(10) ON 31/01/1951, the Board of Directors of the Insurance Company passed resolutions to the following effect : (1) To open an account in the Chartered Bank at Bombay. (2) To authorise Chokhani to operate on the account of the Insurance Company.(3) To for the keeping of the government securities had by the company, in safe custody, with the Chartered Bank. (4) To instruct the Bank to accep
