1956 (5) TMI 20 - SC - Companies Law

Whether or not there was mens rea in this case? Whether the necessary element of a criminal offence have been made out? Held that - As there was no mistake about the basic fact, the provisions of section 79, Indian Penal Code, are not attracted to this case. For a prosecution for breach of trust even by a director of a company no such condition precedent as the previous sanction of any authority is contemplated by law, unless it is a prosecution in the name and on behalf of the company by the official liquidator who has to incur expenses out of the funds of the company. Section 179 is an enabling provision to enable the liquidator to do certain things with the sanction of the court. It does not control the general law of the land. For a prosecution for breach of trust even by a director of a company no such condition precedent as the previous sanction of any authority is contemplated by law, unless it is a prosecution in the name and on behalf of the company by the official liquidator who has to incur expenses out of the funds of the company. Section 179 is an enabling provision to enable the liquidator to do certain things with the sanction of the court. It does not control the general law of the land. Appeal dismissed.

Issues Involved:
1. Conviction under Section 409 of the Indian Penal Code.
2. Entrustment of property.
3. Mens rea and dishonesty.
4. Compliance with procedural requirements.
5. Validity of the charge framed.

Detailed Analysis:

1. Conviction under Section 409 of the Indian Penal Code:
The appellant was convicted under Section 409 IPC for committing criminal breach of trust regarding Government Promissory Loan Notes entrusted to him as the managing director of the Exchange Bank of India and Africa Ltd. The courts below sentenced him to rigorous imprisonment for three months and a fine of Rs. 201, with an additional six weeks of rigorous imprisonment in default of payment.

2. Entrustment of Property:
The securities were pledged to the Exchange Bank by the Cambay Hindu Merchants Co-operative Bank as security for an overdraft facility. The Exchange Bank, represented by the appellant, pledged these securities to Canara Bank and later to Messrs. Merwanji Dalai & Co. without the Co-operative Bank's consent, violating the terms of the contract.

The court held that the appellant, as the managing director, had dominion over the securities and was entrusted with them in a derivative sense. The Exchange Bank became a bailee of the securities, and the appellant had no right to deal with them contrary to the terms of the agreement.

3. Mens Rea and Dishonesty:
The court examined whether the appellant acted with the intention of causing wrongful gain to the Exchange Bank or wrongful loss to the Co-operative Bank. The appellant disposed of the securities in violation of the contract, causing wrongful loss to the Co-operative Bank and wrongful gain to the Exchange Bank. The court found that the appellant had the necessary mens rea, as he intended both outcomes.

The appellant's defense of mistake of fact or law was rejected. The court noted that the appellant did not raise this plea during the trial and was aware of the true state of accounts between the two banks. The appellant's belief that he was justified by law in dealing with the securities was not in good faith, as required by Section 79 of the Indian Penal Code.

4. Compliance with Procedural Requirements:
The appellant argued that the prosecution was incompetent due to the lack of sanction from the Company Judge under Section 179 of the Indian Companies Act. The court held that Section 179 did not apply to this case, as the prosecution was not initiated by the official liquidator but by the police. The section only required the liquidator to obtain court sanction for instituting proceedings in the company's name, not for general criminal prosecutions.

5. Validity of the Charge Framed:
The appellant contended that the charge was vague and defective, causing material prejudice. The court found that the charge fulfilled the requirements of Section 221 of the Criminal Procedure Code by specifying the offence and the relevant section. Although the charge could have been more detailed, it provided sufficient notice of the nature of the offence. The court concluded that the omissions in the charge did not materially affect the trial or prejudice the appellant's defense, as evidenced by his detailed written statement addressing the gravamen of the charge.

Conclusion:
The appeal was dismissed, with the court affirming the conviction and sentence. The court found that the appellant had committed criminal breach of trust by dishonestly disposing of the securities entrusted to him, causing wrongful loss to the Co-operative Bank and wrongful gain to the Exchange Bank. The procedural objections raised by the appellant were also rejected, as they did not affect the validity of the trial or the conviction.

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