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1987 Supreme(Del) 185
High Court Of Delhi
SURINDER ARORA - Appellant
Versus
DURGA DAS - Respondent
CRIMINAL APPEAL 10 of 1984
Decided On : 04/10/1987
K.K.JAIN, MADAN LOKUR, NITYA RAMAKRISHNAN
The essential ingredients of criminal breach of trust under Section 406 IPC are entrustment of property, misappropriation or conversion of property to one's own use, or use or disposal of property in violation of any direction of law or legal contract, or wilfully suffering any other person to do so, with dishonest intention.
Headnote:
CRIMINAL BREACH OF TRUST - SECTIONS 405, 406 IPC - PAYMENT OF GRATUITY ACT, 1972 - SECTIONS 4, 7 - INCOME TAX ACT, 1961 - SECTION 40A(7) - IT RULES, 1962 - RULES 67(1), 67(2) - SUMMARY OF THE ACTS AND SECTIONS REFERENCED AND DISCUSSED BY THE COURT.
Fact of the Case:
A complaint was filed against the Managing Director, Directors, Deputy General Manager (Finance), Accountant, and a partner of a Chartered Accountant firm of a company for misappropriation and conversion of the Gratuity Fund amount, in violation of Sections 405 and 406 of the IPC, Section 40a(7) of the IT Act, and Rules 67(1) and 67(2) of the IT Rules.
Finding of the Court:
The court found that the company had not complied with the provisions of Section 40a(7) of the IT Act and the IT Rules, but there was no evidence to suggest that the accused had converted the amount to their own use or violated the provisions of the trust or the obligations arising under the IT Rules. The court also found that the gratuity fund amount shown in the balance sheet only indicated the company's liability towards its employees and did not prove that the accused had violated the provisions of the trust or the IT Rules.
Issues: 1. Whether the facts disclosed in the complaint and the evidence led in support of the same are sufficient to initiate proceedings against the accused. 2. Whether the company failed to comply with the relevant provisions of the Gratuity Act.
Ratio Decidendi: 1. The essential ingredients of Section 406 IPC, which defines criminal breach of trust, are entrustment of property, misappropriation or conversion of property to one's own use, or use or disposal of property in violation of any direction of law or legal contract, or wilfully suffering any other person to do so, with dishonest intention. 2. In the case of gratuity, the liability to pay arises only after retirement or death, and it is the responsibility of the employer to find the money and pay the same. 3. The employer is within its right to create a fund or take out an insurance policy to lessen its burden for arranging funds at the time the gratuity is to be paid to its employees. 4. If a fund is created, the money is contributed by the company only, and no person has any right or interest in it, there is no entrustment at all. 5. Rules 67(1) and 67(2) of the IT Rules are applicable to recognized provident funds and do not apply to gratuity. 6. In the case of gratuity, no amount is contributed by an employee, which becomes payable only on retirement or death, etc. 7. Gratuity can be forfeited in certain eventualities. 8. No employee, however, has a right or interest in any account or fund whatsoever, even if created.
Final Decision: The court dismissed the revision petition, holding that the impugned order was factually and legally correct and did not call for any interference.
( 1 ) ON 9-12-1981, Shri Surinder Arora, an ex- employee of M/s. Associated Traders and Engineering Limited, 20/1, Asaf Ali Road, New Delhi, filed a complaint in the court of the concerned Metropolitan Magistrate, for initiation of proceeding under Sections 406 and 418 of the IPC, against the Managing Director, three Directors, the Deputy General Manager (Finance), an accountant and Shri P. K. Seth, a partner of the firm of Chartered Accountants of the Company.
( 2 ) THE case of the petitioner as disclosed in the complaint is that accused Nos. 1 to 5 created an approved Gratuity Fund and named it as "associated Traders and Engineers Employees Gratuity Fund" and in compliance with the provisions of Section 40a (7) of the IT Act opened an account with the Andhra Bank, Asafali Road, New Delhi. The accused Nos. 1 to 6, however, never deposited the amount of the fund in the Post Office Saving. Bank Account or as prescribed under Rule 67 (1) and (2) of the IT Rules. . The accused, thus knowingly and intentionally contravened the terms of the irrevocable trust. It is his further case that the gratuity amount deposited in the approved gratuity fund belong to the employees of the company and is payable under the Payment of Gratuity Act, 1972. This amount cannot be used by the employer in any other manner. The company, however, has misappropriated and converted to its own use the above said fund. It is contrary to law. By not fulfilling their statutory obligations, the officers of the company had made themselves liable to the penal consequences. The accused be summoned and punished according to law.
( 3 ) IN support of the complaint, the petitioner examined himself and produced Sarvashri G. KDua. S. K. Sharma and N. K. . Khattar, employees of the company. The Id. lower court on consideration of the oral as well as the documentary evidence came to the conclusion that even if the facts of the complaint are taken on their face value, no criminal liability can be fixed on the Deputy General Manager (Finance), the Accountant and the partner of the Chartered Accountant firm of the company, as they did not play any part in the misappropriation, if any, of the Gratuity Fund amount. As regards the Managing Director and the Directors of the company, the finding is that the complainant has miserably failed to bring his case within the four corners of the offence referred to above, inasmuch as there is no positive evidence to suggest that the accused Nos. I to 4 have either converted the amount in question to their own use or have not deposited the gratuity amount in savings bank account of any recognised scheduled bank as required under the IT Act and the rules framed thereunder. Furthermore, the gratuity fund amount shown iii the balance sheet only indicates the liability of the company towards its employees to that extent. It is not a circumstance to prove that the accused have either violated the provisions of the trust, or the obligations arising under the IT Rules. On these findings, the complaint was dismissed. It is against this order that the complainant has filed the present petition.
( 4 ) THE first and the foremost contention of the Id. counsel for the petitioner is that at the stage of consideration, whether or not to issue process, the court below was required to see, as to whether the facts disclosed in the complaint as well as the evidence led in support of the same are sufficient to initiate proceedings or not. The court went wrong in making out a plausible defence for the accused persons. Once it is proved on the record that the company has not complied with the provisions of Section 40a (7) of the IT Act and the rules framed thereunder, the Id. Metropolitan Magistrate should have summoned the accused persons. The submissions of the Id. counsel for the respondents on the other hand is that even if the facts disclosed in the complaint and the evidence on record are taken on their face value, no case for the summoni
