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Kedarnath v. State
Factual and Procedural Background
This revision arises from the conviction of Kedar Nath under Section 409, Indian Penal Code (criminal breach of trust), and a sentence of three years' rigorous imprisonment. The factual backdrop, as found by the courts below, is as follows:
- In 1958 a Co-operative Federation at Bodarwar decided to run a brick-kiln and by resolution appointed Kedar Nath as Manager (resolution dated 23-1-1958). The Federation later made it clear that the Manager bore complete responsibility, subject to some supervision by a committee and later by the President and Secretary.
- The Manager (applicant) was responsible both for running the brick-kiln and for keeping and maintaining stock and account books; he personally maintained the account books.
- Federation inspectors (notably Ram Adhyaya Sharma) carried out periodic inspections and recorded repeated deficiencies and suspicious accounts in inspection notes during 1960, warning the Manager and asking for corrections.
- Following these inspections, the Federation suspended the Manager on 1-6-1960; stock was checked on 19-6-1960 and a charge-list prepared. Jagdish Singh, supervisor, took over the charge thereafter.
- On stock-taking in June 1960, shortages were discovered: 14 tons of coal short (valued at Rs. 578.48) and various classes of bricks short (valued at Rs. 6,572.75). The lower court found these shortages when compared with the balances in the account books maintained by the applicant himself.
- The applicant was convicted on two counts of embezzlement under S. 409, I.P.C.; this revision challenges that conviction and sentence.
Legal Issues Presented
- Whether, in the absence of direct evidence showing the precise mode of conversion or the exact person who removed the property, a conviction for criminal breach of trust under S. 409, I.P.C. is sustainable when there is entrustment and a failure to account for the entrusted property.
- Whether explanations offered by the accused (that entries were inaccurate due to statements by a coalman, or that a supervisor sold bricks in the accused's absence) amount to reasonable doubt or are sufficient to rebut an inference of dishonest misappropriation.
- Whether negligence or an innocent error of judgment (leading to civil liability) can be distinguished from wilful dishonesty or wilfully suffering another person to misappropriate, such that criminal liability under S. 409 cannot be fastened.
- What standard of care is expected of a Manager-cum-accountant entrusted with Federation property, and whether failure to meet that standard can support an inference of wilful misappropriation or wilful suffering.
Arguments of the Parties
Applicant's (Appellant's) Arguments
- The applicant admitted maintaining the account books and the existence of shortages but explained the shortages by reference to third parties:
- As to coal: he alleged that a coalman, Shabbir, maintained separate consumption accounts and had told him on 14 days that only one ton (instead of two) was consumed; the applicant made entries accordingly, causing the apparent shortage.
- As to bricks: he asserted that when he was away on official work, Jagdish Singh acted as in-charge of sales and sold bricks without entering them in the register, producing the shortage.
- Counsel for the applicant argued that, even on the lower courts' findings, there was no evidence establishing the modus operandi (when, how, and by whom the bricks and coal were removed), and therefore the prosecution had not proved criminal breach of trust beyond reasonable doubt.
- The applicant also contended that if the evidence permits the possibility that someone else may have committed the misappropriation, he is entitled to the benefit of doubt; alternatively, any fault might be negligence or civil liability rather than deliberate criminal conduct.
Respondent / Prosecution Position (as reflected in the courts' findings)
- The courts below found that the applicant, being the Manager, had responsibility for the entire operation and for maintaining accounts and stocks, and that he personally kept account books.
- Inspections and the stock check revealed discrepancies and shortages compared to the applicant's own book balances; inspection notes described accounts as incomplete, suspicious, and providing room for misappropriation.
- The lower courts inferred dishonest misappropriation or conversion by the applicant from entrustment combined with failure to account and rejection of the explanations offered by the applicant.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Jaikrishnandas Manohardas v. State of Bombay, 1960-3 SCR 319 (AIR 1960 SC 889) | The prosecution is not obliged to prove the precise mode of conversion or misappropriation; where there is entrustment of property and a failure to account, those facts, in light of other circumstances, may justify an inference of dishonest misappropriation or conversion. Also, where an accused renders an untrue explanation for failure to account, an inference of misappropriation with dishonest intent may be made. | The court relied on this precedent to reject the argument that absence of direct evidence of modus operandi precludes conviction. The court held that entrustment plus failure to account, together with untrue explanations, permit an inference of dishonest misappropriation. |
| State of U.P. v. Babu Ram Upadhya, (1961) 2 SCR 679 (AIR 1961 SC 751) | To constitute an offence under S. 405 IPC (criminal breach of trust) there must be entrustment of property and dishonest misappropriation; the entrusted person may misappropriate it himself or may wilfully suffer another person to do so. | The court applied this principle to conclude that even if someone else committed the actual misappropriation, the applicant could be guilty if he wilfully suffered that person to misappropriate. The court found the applicant liable on that basis. |
Court's Reasoning and Analysis
The court proceeded by first establishing the factual matrix accepted by the courts below: Kedar Nath was appointed Manager, personally maintained the accounts and stock records of the brick-kiln, and had been repeatedly warned in inspection notes about incomplete and suspicious accounts. A stock check showed shortages relative to the account-book balances maintained by him.
The court then examined the explanations offered by the applicant for the shortages:
- Coal shortage explanation: the applicant claimed that the coalman Shabbir told him on certain days that consumption was one ton instead of two, and the applicant entered consumption on that basis. The court found this explanation implausible because it required Shabbir to create records incriminating himself by under-reporting consumption; the lower courts rejected this explanation as not believable.
- Bricks shortage explanation: the applicant claimed that Jagdish Singh sold bricks during the applicant's absences without entries being made. The court found the evidence for this vague and lacking detail (no specific dates or occasions); the lower courts disbelieved this explanation as not establishing that Jagdish Singh disposed of bricks in the applicant's absence.
The court addressed the defence argument that lack of direct evidence of modus operandi should prevent conviction. Relying on Jaikrishnandas Manohardas, the court reiterated that direct proof of mode of conversion is not necessary where entrustment and a failure to account exist and an accused's explanation is untrue; an inference of dishonest misappropriation may be justified.
The court then analysed the contention that the conduct might amount only to negligence or an innocent error of judgment rather than deliberate dishonesty. It reviewed the legal distinction between negligence and criminal dishonesty:
- Criminal breach of trust requires dishonesty (wrongful loss or gain) not mere inadvertence; wilful suffering of another to misappropriate also attracts liability under S. 405.
- The applicable standard of care depends on the nature of the office; as a Manager-cum-accountant entrusted with Federation property, the applicant held a high position and was required to exercise a correspondingly high standard of care.
- The court observed that good faith excuses an error only where due care and attention were exercised; the standard is that of a reasonably prudent person in a similar position.
Applying these principles to the facts, the court concluded that the applicant either had the requisite experience and yet did not act with the care expected of a reasonably prudent manager, or, if lacking specialised knowledge, he nevertheless failed to exercise the greater circumspection required. The repeated inspection notes gave correct advice which he ignored. On these facts the court characterized the conduct as deliberate or culpably negligent such that it warranted an inference of dishonest misappropriation or, at least, that he wilfully suffered misappropriation by others.
The court cited State of U.P. v. Babu Ram Upadhya to support the proposition that wilfully suffering another to misappropriate property is within the scope of criminal breach of trust; applying this, the court held that even if another committed the physical act, the applicant would still be guilty if he wilfully permitted it.
Holding and Implications
Holding: The revision is dismissed; the conviction under Section 409, I.P.C. and the sentence of three years' rigorous imprisonment were upheld. The applicant (who was on bail) is directed to surrender and serve the sentence.
Implications:
- Direct effect: The appellant's revision fails and the conviction and sentence stand; the appellant must surrender and serve the sentence imposed by the lower court.
- On broader law: The court applied established Supreme Court authority to reaffirm that (a) direct proof of modus operandi is not required where entrustment and failure to account permit an inference of dishonest misappropriation, and (b) wilfully suffering another to misappropriate is within S. 405's scope. The opinion does not purport to lay down a novel precedent beyond applying these authorities to the facts.
This summary is based exclusively on the content of the provided opinion; no information has been added that does not appear in the opinion itself.
1. This is a revision by one Kedar Nath, against his conviction under S. 409, I.P.C and sentence of three years' rigorous imprisonment. In the district of Deoria there is a Co-operative Federation at a place known as Bodarwar. In the beginning of the year 1958 the Federation resolved to run a brick-kiln and by resolution No. 3 dated 13-1-1958 the Federation resolved inter-alia that a Manager and a Chaukidar be engaged for running the brick-kiln (Vide page 24 of the Minute Book Ex. VIII). On 23-1-1958 by resolution No. 4 (Ex. Ka. 16) the Federation decided to appoint Kedar Nath, the applicant, as Manager on a monthly salary of Rs. 55/-. The Federation held a meeting on 1-3-1958 in which it appointed a committee for the supervision of the brick-kiln by resolution No. 5-B. This committee consisted of several gentlemen other than the applicant, the Manager. This resolution also stated that the entire responsibility in respect of the brick-kiln shall be of the Manager as well as of the Managing Committee. The applicant admittedly worked as the Manager of the brick-kiln.
2. It appears that after sometime the applicant was suspended from the office of the Manager as certain complaints were received by the Federation and the Federation wanted to enquire into them. Resolution No. 3 of the meeting of the Federation held on 17-7-1959 states that after investigation Sri Kedar Nath has been found innocent of the charges and that he is reinstated to the post of the Manager of the brickkiln. On 18-5-1959 in reply to the applicant's letter of the same date, a letter was served on the applicant (Ex. Ka. 17) informing him that the entire responsibility of running the brick-kiln has been placed on him as Manager. On 23-5-1959 the Federation, by a resolution, increased the salary of the applicant to Rs. 65/- per month with effect from May 1959. The same day by another resolution it resolved that the supervision of the brick-kiln shall be the responsibility of the President and the Secretary of the Federation, but subject to that, in all matters complete responsibility shall be of the Manager (Vide Ex. Ka 18).
3. Ram Adhyaya Sharma (P.W 1) is the inspector of the Federation. He used to inspect the brick-kiln and used to make notes of his inspection in a register Ex. 7. He has stated in the witness-box that the applicant being the Manager, was responsible for the entire work of the brickkiln it was his duty to get the bricks made, burnt, taken out and sold. It was his duty to keep the stock book and maintain all the relevant accounts in respect of the brick-kiln, it was also his duty to control the staff and pay them as also to meet the expenses of the brick-kiln. He also stated that the applicant used to maintain all the account books with respect to the stock of coal, bricks, etc., their receipt and sale in his own hand. This fact has not been denied by the applicant. Ram Adhyaya Sharma used to periodically inspect the brick kiln.
4. In his inspection note dated 3-1-1960 written in the Register Ex. 7, he pointed out several discrepancies and defects in the working of the brick-kiln and the maintenance of its accounts. He suggested that a Bharai register should the maintained, that the Nikasi register should be filled in daily. He stated that accounts are incomplete and that several necessary registers are not being maintained. He again inspected the brick-kiln on 3-4-1960 and with regret noted that in spite of his previous objections and suggestions no improvement has been made and that the state of accounts is extremely unsatisfactory. He also mentioned that the accounts are suspicious. He asked the Manager to complete them and show it to him within a fortnight. He noted that the accounts of the brickkiln are maintained in a manner that there is room for misappropriation. On 15-5-1960 Sri Sharma again inspected the brick-kiln and this time he found the state of affairs exceedingly unsatisfactory. He noted that the Cash Book is incomplete, that the Manager has not produced the vouchers of expenses, that in spite of several objections the Bharai Kegister is not being maintained, that the coal register is incomplete, that the Nikasi register appears to be fictitious, that the Manager did not show him the stock register as a result of which the could not check the stocks, and that he suspects that there is some mystery behind it. On 17-5-1960 Jagdish Singh Supervisor by a note made in the Register Ex. 7 directed the Manager Kedar Nath to carry out the instructions in the inspection note immediately.
5. At this stage it appears enquiries were initiated as a result whereof the Federation on 1-6-1960 suspended the Manager Kedar Nath. On 19-6-1960 stock was checked and a charge list was prepared, thereby Jagdish Singh, supervisor took over the charge of the brick-kiln from the applicant.
6. The applicant has been convicted under S. 409, I.P.C for embezzlement on two counts—firstly for Rs. 578-48 paisas as the price of 14 tons of coal found short on the actual stock taking and secondly for Rs. 6572.75 paisas towards the price of different classes of bricks found short on actual stock taking. The Court below has found that the applicant was responsible for keeping and maintaining the stocks as well as the accounts. He was responsible for the working of the brick-kiln in its entirety, in effect he was not merely the Manager Out also Accountant-cum-clerk of the brick-kiln. In June 1960 when the stocks were actually cheeked they were found short when compared with the balance mentioned in the account books maintained by the applicant Kedar Nath himself.
7. The applicant does not deny that he maintained the account books and that there was the alleged shortage. He has in his defence given several explanations to account for the shortage.
8. In respect of the shortage of coal the applicant stated that he had given the entire stock of coal to Shabbir, coalman, and the latter used to keep the accounts of the consumption of coal; that normally two tons of coal were consumed per day, but on 14 different days Shabbir told the applicant that only one ton of coal was consumed each day and on Shabbir's so saying the applicant made entries of the consumed coal at the rate of one ton for those days. He says that actually on those dates the consumption was two tons per day and the shortage is due to inaccurate entries of consumption made at the instance of Shabbir.
9. I agree with the lower Courts that this explanation is not believable and does not appeal to reason. According to it Shabir was creating a record incriminating himself by reporting a consumption less than the actual. The Courts below have inferred that the applicant misappropriated the 14 tons of coal dishonestly with a view to cause wrongful loss to the brick-kiln.
10. The other item of embezzlement is of bricks. The shortage is not disputed. The accused has offered an explanation for this shortage. He stated that he used to go out on official work of the brick-kiln for several days in a month. In his absence Jagdish Singh used to be the incharge of the sales of the bricks and the shortage in the bricks is due to Jagdish Singh selling them without making any entry in the register for them. The evidence led by the accused to establish this explanation has been found to be vague in nature. There is no evidence giving detail of dates and occasions when Jagdish Singh was Incharge of the brick-kiln. It has been found that the evidence adduced by the applicant does not establish that Jagdish Singh disposed of bricks in the applicant's absence. The explanation offered has been disbelieved. It has been held that the applicant failed to account for the shortage of the bricks and that it can reasonably be inferred that he misappropriated them dishonestly.
11. Pt. S.N Mulla, appearing for the applicant, has argued that even on the findings arrived at by the Courts below, no offence is made out. It is urged that in the absence of any evidence to establish the modus operandi of the applicant in committing the embezzlement, or to show when, how and by whom were the bricks and coal removed, no criminal breach of trust can be established. This kind of argument was repelled by the Supreme Court in Jaikrishnandas Manohardas v. State of Bombay, 1960-3 SCR 319 at p. 324 : (AIR 1960 SC 889 at p. 891) in the following words:
“Direct evidence to establish misappropriation of the cloth over which the appellants had dominion is undoubtedly lacking, but to establish a charge of criminal breach of trust, the prosecution is not obliged to prove the precise mode of conversion, misappropriation or misapplication by the accused of the property entrusted to him or over which he has dominion. The principal ingredient of the offence being dishonest misappropriation or conversion which may not ordinarily be a matter of direct proof, entrustment of property and failure in breach of an obligation to account for the property entrusted, if proved, may in the light of the other circumstances justifiably lead to an inference of dishonest misappropriation or conversion.”
12. Their Lordships further go on to observe:—
“Conviction of a person for the offence of criminal breach of trust may not, in all cases, be founded merely on his failure to account for the property entrusted to him, or over which he has dominion, even when a duty to account is imposed upon him, but where he is unable to account or renders an explanation for his failure to account which is untrue, an Inference of misappropriation with dishonest intent may readily be made.”
13. Under his legal contract the applicant as the Manager was duty bound to account for the stocks. He miserably failed to account for them. The explanation offered by him for the shortage has been found to be untrue. In these circumstances the inference of dishonest misappropriation or conversion made by the Court below cannot be characterised as illegal or perverse.
14. The next submission of the learned counsel was that the applicant may have been negligent in conducting the affairs of the brick-kiln and may have incurred civil liability, but in the absence of any finding that the applicant actually misappropriated or connived at it, he could not be held guilty of criminal breach of trust. The learned counsel contended that if it is possible to hold on the basis of the evidence that some one else may have done it, then the applicant is entitled to the benefit of doubt.
15. Section 405, I.P.C defines ‘Criminal breach of trust’. The second part of the section says that “whoever wilfully suffers any other person to misappropriate or convert any property, commits criminal breach of trust.” Hence wilful suffering makes a man liable. “Wilful” means deliberate or Intentional and not accidental or by inadvertence.
16. in substance the argument is that the applicant may have made an error of judgment in good faith or may have been negligent in the discharge of his duties, but he did not act deliberately or intentionally. The negligence was not culpable.
17. Negligence is a term of act but has distinct meanings in different jurisdictions. In Torts, damage is an essential ingredient, but that element is not necessary in the law of master and servant. In law of crimes there are a series of offences based on negligence in which loss or injury is not material. It is enough if the act is likely to cause injury or endanger life. Ss. 279, 290, 285 and 287 of the I.P.C are illustrative examples. For criminal breach of trust under S. 405, I.P.C dishonesty, that is, wrongful loss or gain, has to be established.
18. Apart from the question of loss, another Ingredient which runs through every branch of the law of negligence is that there must be a duty to take care. The nature of the duty and the standard of care will vary according to the nature of the office or the contract and the circumstances. Generally speaking, the standard that the law enjoins is governed by the knowledge and skill that the office or occupation requires, by the magnitude of the task and by the gravity of the consequences that are likely to ensue if the requisite degree of care is not exercised.
19. Good faith imports the exercise of due care and attention, a person can be excused for having committed an error of judgment only if he exercised due care and attention and his conduct makes it clear that there was not negligence according to reasonable standards. The standard of care required is that of a reasonably prudent man who acts with the care and caution required of a person in his position dealing with a matter of similar importance. If such a person could have acted in a similar way, then only could the accused be excused for what he calls a mere error ??? or innocent dereliction of duty.
20. The question is What is the standard of care that is to be expected in the case of a man in the position of the applicant. The applicant was a Manager-cum-accountant. He was responsible for the entire administration of the brick-kiln. He was a trustee of the Federation property. It is evident that he had got a high position and a high standard of care was required. Either the applicant had good experience of running a brick-kiln; in that case he did not act like a reasonable prudent man in his position. If he did not have speciallsed knowledge, he should have acted with greater circumspection and caution. He should have taken additional care to see that he was given proper advice. The inspection notes of Ram Adhyaya Sharma repeatedly warned him and useful suggestions for avoiding loss were made. Thus he was given correct advice, but he chose to disregard it. The applicant's conduct was thus deliberate. This was not a case of mere error of judgment in good faith. His negligence was culpable. Even if it be assumed that someone else committed the misappropriation the applicant wilfully suffered him to do so. As the Supreme Court says (State of U.P v. Babu Ram Upadhya, (1961) 2 SCR 679 at p. 688 : (AIR 1961 SC 751 at p. 756)):
“To constitute an offence under this section, there must be an entrustment of property and dishonest misappropriation of It. The person entrusted may misappropriate it himself, or he may wilfully suffer another person to do so.”.
21. Accordingly the applicant would be guilty. He has been right convicted and sentenced. In the result, the revision fails and is dismissed. The applicant is on bail. He must surrender and serve out the sentence.
KH/VGW/V.B.B
22. Revision dismissed.
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