Criminal misappropriation and criminal breach of trust

1. Dishonest misappropriation: section 314

Whoever dishonestly misappropriates or converts to his own use any movable property is punishable with imprisonment of not less than six months and up to two years, and fine (old s.403 IPC). The minimum of six months is new. The property comes to the accused innocently; the offence lies in the later dishonest appropriation.

• A takes Z's property in good faith believing it his own; on discovering the mistake he keeps it. Not theft, but misappropriation (illustration (a)).
• A borrows a book with Z's implied consent and later sells it (illustration (b)).
• A joint owner of a horse sells it and keeps the whole price (illustration (c)).

Explanation 1: a misappropriation for a time only is enough, so pledging a found Government promissory note intending to return it later is an offence. Explanation 2 deals with the finder. A person who finds property not in anyone's possession and takes it to protect it or restore it to the owner commits no offence; but he commits the offence if he appropriates it when he knows or has the means of discovering the owner, or before he has used reasonable means to find and notify the owner and kept it a reasonable time. He need not know who the owner is; it is enough that he does not believe it is his own or in good faith believe the owner cannot be found. Finding a rupee on the road is innocent; selling a valuable ring at once without any inquiry is not (illustration (f)).

Section 315 (old s.404) punishes dishonest misappropriation of property possessed by a deceased person at his death, before it reaches anyone legally entitled; up to three years, or seven years if the offender was the deceased's clerk or servant.

2. Criminal breach of trust: section 316(1)

Whoever, being in any manner entrusted with property, or with any dominion over property:

• dishonestly misappropriates or converts it to his own use; or
• dishonestly uses or disposes of it in violation of any direction of law prescribing how the trust is to be discharged, or of any legal contract, express or implied, touching its discharge; or
• wilfully suffers any other person to do so,

commits criminal breach of trust (old s.405). The two essentials are entrustment and dishonest misappropriation, conversion, use or disposal.

Explanations 1 and 2 deem an employer who deducts employees' contributions to the Provident Fund or the Employees' State Insurance Fund to be entrusted with them, so that his failure to pay them in is criminal breach of trust.

3. Entrustment

“In any manner” makes entrustment wide; it need not be a trust in the technical sense of trust law. Executors, warehouse-keepers, agents, carriers and revenue officers are the illustrations. Three points from the cases:

• Ownership must remain with the entruster. In State of Gujarat v. Jaswantlal Nathalal, 1967 INSC 272, AIR 1968 SC 700, the Government sold cement to a contractor for a building, and the contractor used part of it elsewhere. The Court held there was no entrustment, because the cement was sold and property in it passed to the contractor. A sale, unlike a deposit or bailment, transfers ownership and leaves nothing to be entrusted.
• Dominion is not enough without entrustment. In Velji Raghavji Patel v. State of Maharashtra, 1964 INSC 284, AIR 1965 SC 1433, a working partner who collected the firm's dues was convicted of criminal breach of trust. The Court set the conviction aside. Every partner has dominion over partnership property because he is a co-owner, but that dominion arises from ownership, not from entrustment. Without a special agreement entrusting him with the property, a partner's failure to account is a matter for a suit for accounts.
• Directors and company funds. In R.K. Dalmia v. Delhi Administration, 1962 INSC 123, AIR 1962 SC 1821, the chairman of an insurance company who diverted its funds to cover his personal losses in share speculation was held to have had dominion over the funds as entrusted to him, and was guilty of criminal breach of trust.

4. Dishonest intention

A mere failure to account, or a breach of a direction, is not criminal unless it is dishonest. Illustration (d) makes the point: an agent who, in good faith, buys bank shares instead of the Government paper he was told to buy, believing it better for his principal, is liable in a civil action for the loss but commits no criminal breach of trust. Dishonesty may, however, be inferred where the accused fails to account and gives a false explanation.

5. Aggravated forms: section 316(2) to (5)

• simple criminal breach of trust, up to five years (s.316(2), old s.406; the IPC maximum was three);
• by a carrier, wharfinger or warehouse-keeper, up to seven years (s.316(3), old s.407);
• by a clerk or servant entrusted in that capacity, up to seven years (s.316(4), old s.408);
• by a public servant, or in the way of business as a banker, merchant, factor, broker, attorney or agent, imprisonment for life or up to ten years (s.316(5), old s.409).

The higher punishment in s.316(5) reflects the greater trust placed in such persons by the public. A public servant must be entrusted in his capacity as public servant; money taken by a clerk from a friend for a private purpose is not within the sub-section.

6. The distinctions

• Theft and criminal breach of trust. In theft the property is taken out of another's possession without consent. In criminal breach of trust it is lawfully in the accused's possession by entrustment, and the dishonest intention arises afterwards. A servant who merely has custody of his master's plate commits theft by running off with it; a warehouse-keeper who has possession commits criminal breach of trust (illustrations (d) and (e) to s.303). Theft is only of movable property; criminal breach of trust may be of any property.
• Criminal misappropriation and criminal breach of trust. Both involve property lawfully or innocently in the accused's hands. In misappropriation it comes to him casually, by finding or by mistake, with no relationship to the owner. In criminal breach of trust it comes by entrustment, creating a fiduciary relationship. Misappropriation is confined to movable property.
• Cheating and criminal breach of trust. In cheating the property is obtained by deception, and the dishonest intention must exist from the start. In criminal breach of trust the entrustment is honest and the dishonesty comes later. The two cannot ordinarily stand together on the same facts, as the Court pointed out in Delhi Race Club (1940) Ltd. v. State of Uttar Pradesh, 2024 INSC 626, criticising the routine practice of registering both offences together.

7. Problem

A, a cashier in a bank, receives Rs. 50,000 from a customer for deposit, uses it to pay his own loan, and replaces it a week later before an audit.

Issue. Whether a temporary use, later made good, is criminal breach of trust, and under which sub-section.

Law. Section 316(1) covers dishonestly using entrusted property in violation of a contract. Dishonesty includes causing wrongful loss even for a time. Section 316(4) applies to a clerk or servant entrusted in that capacity; s.316(5) to a person entrusted in the way of his business as a banker.

Application. A received the money as the bank's cashier, so it was entrusted to him in that capacity. Using it for his own loan was a dishonest use in breach of his contract of service; the bank and the customer were wrongfully kept out of the money for a week. Repayment before the audit shows the dishonest use, not good faith, and does not undo the offence, though it may bear on sentence.

Conclusion. A is guilty of criminal breach of trust as a clerk or servant under s.316(4). Section 316(5) applies to a person carrying on business as a banker, which a cashier employed by the bank is not.

How this is examined

January 2026: “Explain the criminal breach of trust under B.N.S. 2023” (10 marks). Give s.316(1) with its two essentials, the meaning of entrustment with Jaswantlal Nathalal and Velji Raghavji Patel, the dishonesty requirement with illustration (d), the four grades of punishment, and end with the distinctions from theft and misappropriation. The finder of lost property under Explanation 2 to s.314 is a regular short note and problem.