A conviction for criminal breach of trust under Section 409 of the IPC requires clear proof of entrustment and dishonest misappropriation; a failed civil business transaction where loans are subsequently recovered through mortgaged assets does not satisfy the criminal burden of proof.

1. The appellant has preferred this appeal under Section 378 read with Section 372 of Code of Criminal Procedure, 1973 (for short, ‘CrPC’) questioning the impugned judgment of acquittal dated 08.07.2011 passed by the learned Additional Session Judge Durg, District – Durg (C.G.) in Criminal Appeal No. 12/2011, setting aside the order dated 28.01.2011 passed by learned Judicial Magistrate First Class, Durg, District – Durg (C.G.) in Criminal Case No.156/2009, whereby the appellate Court vide order dated 08.07.2011 has acquitted the respondents No.1 to 3 from the charges and conviction under Section 409 of the Indian Penal Code (IPC) of 3 years of rigorous imprisonment and fine of Rs. 3,000/-.

2. Case of the prosecution, in brief, is that the accused Anil Agrawal, Vijay Agrawal and Sunil Agrawal along with lady family members namely Smt. Rama Devi Agrawal, Smt. Uma Devi Agrawal and Smt. Kanta Devi Agrawal were the Directors of the Companies named and styled A.B.S. Steel, A.B.S. Metal, D.M. Engineering and Quality Ice Cream. All the aforesaid companies availed financial accommodation from the complainant Punjab National Bank to the extent of Rs. 34.09 Crores. The aforesaid loan was granted by the Bank after scrutiny of all the papers and the respective borrowers were required to avail the said loan after execution of agreement of hypothecation and indemnity whereby the repayment of loan was subjected to the security of the hypothecated goods. After availing the said loan of the raw materials, stocks in course of trade, the financial products and all the machineries of the plants were hypothecated in favour of the complainant Bank thereby the amount of loan availed was subjected to charge in favour of the Bank.

3. After availing the loan, the accused along with its other Directors started transactions and availed the loan to its utmost advantage. According to the terms of repayment, the accused / borrowers were required to maintain the margin of hypothecation to the extent of limit outstanding with respect to the loan. The loan was to be repaid according to the installments as was agreed upon. All of a sudden, while the outstanding of the loan was due the aforesaid accused who were Directors and were in helm of the affairs with the other family members overnight ran away by selling the hypothecated stocks wherein first charge of the Bank was created for repayment of the loan. On the facts having come to fore, the complainant Bank made an inspection in the factory premises and it was discovered that all the hypothecated goods wherein charge was created in favour of the Bank have been sold out without making the deposit of the sale proceeds in the Bank to liquidate the loan.

4. The hypothecated properties i.e. all the movable assets, stocks whether finished or in course of process were held by the accused for and on behalf of the Bank and they do not have any right to sale the properties without any intervention of the Bank in as much as they were holding the properties in trust for the loan availed by them as security thereof. Naturally, therefore, by illegal sale of such stocks, criminal breach of trust was committed in respect of the public money for which the complainant Bank is the custodian. The sale of such hypothecated stocks without making the deposit of sale proceeds in the Bank tantamount to gross criminal breach of trust. As the right of the Bank extinguished by such criminal act and by making wrongful gain of the properties, by such illegal sale, the right of the Bank extinguished as the amount of outstanding dues