The money that a customer deposits in a bank is not held by the latter on trust for him - relationship is one of a creditor and a debtor

In N. Raghavender vs State of Andhra Pradesh, CBI, appeal was filed against judgment passed by Andhra Pradesh High Court, dismissing his criminal appeal against the judgment of the Special Judge, CBI Cases, Hyderabad whereby he was held guilty of the offences under Sections 409, 420, and 477A of IPC and Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, 1988 and sentenced to a total of five years of rigorous imprisonment with various fines for each offence.

The appellant (N. Raghavender), Accused No.1, was the brother-in-law of Accused No.3 and was the bank's Branch Manager. The appellant and A. Sandhya Rani (Accused No. 2) who worked as a Clerk- cum-Cashier in the same Bank from 1991-1996 allegedly abused their respective position in the Bank from 1991-1996 allegedly abused their respective position in the Bank and conspired with Accused no. 3 by allowing withdrawal of amounts up to Rs. 10,00,000/- from the account of the Academy, notwithstanding the fact that the account did not have the requisite funds for such withdrawal.

The Appellant was further accused of pre- maturely closing two FDRs on February 24, 1995 and February 25, 1995 for a sum of Rs. 10,00,000/- and 4,00,000/- respectively which stood in the name of B. Satyajit Reddy. As per the vouchers issued by the Bank, a total of Rs. 14,00,000/- were credited to account but only Rs. 4,00,000/- were shown in the ledger. The remaining Rs. 10,00,000/- were allegedly adjusted towards the secret withdrawal from account during 1994.

Both the Trial Court and the High Court did not accord any weight to the allegations or the defence raised by the Appellant.

On appeal, the Supreme Court elaborately discussed the ingredients necessary to prove a charge under Section 409 IPC.

Section 409 IPC pertains to criminal breach of trust by a public servant or a banker, in respect of the property entrusted to him. The onus is on the prosecution to prove that the accused, a public servant or a banker was entrusted with the property which he is duly bound to account for and that he has committed criminal breach of trust. (See: Sadupati Nageswara Rao v. State of Andhra Pradesh).

The entrustment of public property and dishonest misappropriation or use thereof in the manner illustrated under Section 405 are a sine qua non for making an offence punishable under Section 409 IPC. The expression ‘criminal breach of trust’ is defined under Section 405 IPC which provides, inter alia, that whoever being in any manner entrusted with property or with any dominion over a property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property contrary to law, or in violation of any law prescribing the mode in which such trust is to be discharged, or contravenes any legal contract, express or implied, etc. shall be held to have committed criminal breach of trust. Hence, to attract Section 405 IPC, the following ingredients must be satisfied:

(i) Entrusting any person with property or with any dominion over property;

(ii) That person has dishonestly mis-appropriated or converted that property to his own use;

(iii) Or that person dishonestly using or disposing of that property or wilfully suffering any other person so to do in violation of any direction of law or a legal contract.

It ought to be noted that the crucial word used in Section 405 IPC is ‘dishonestly’ and therefore, it pre-supposes the existence of mens rea. In other words, mere retention of property entrusted to a person without any misappropriation cannot fall within the ambit of criminal breach of trust. Unless there is some actual use by the accused in violation of law or contract, coupled with dishonest intention, there is no criminal breach of trust. The second significant expression is ‘mis-appropriates’ which means improperly setting apart for ones use and to the exclusion of the owner.

No sooner are the two fundamental ingredients of ‘criminal breach of trust’ within the meaning of Section 405 IPC proved, and if such criminal breach is caused by a public servant or a banker, merchant or agent, the said offence of criminal breach of trust is punishable under

Section 409 IPC, for which it is essential to prove that:

(i) The accused must be a public servant or a banker, merchant or agent;

(ii) He/She must have been entrusted, in such capacity, with property; and

(iii) He/She must have committed breach of trust in respect of such property.

Accordingly, unless it is proved that the accused, a public servant or a banker etc. was ‘entrusted’ with the property which he is duty bound to account for and that such a person has committed criminal breach of trust, Section 409 IPC may not be attracted. ‘Entrustment of property’ is a wide and generic expression. While the initial onus lies on the prosecution to show that the property in question was ‘entrusted’ to the accused, it is not necessary to prove further, the actual mode of entrustment of the property or misappropriation thereof. Where the ‘entrustment’ is admitted by the accused or has been established by the prosecution, the burden then shifts on the accused to prove that the obligation vis-à-vis the entrusted property was carried out in a legally and contractually acceptable manner.

As already clarified by us, to prove the charge under Section 409 IPC, the prosecution need not prove the exact manner of misappropriation. Once the ‘entrustment’ is admitted or proved, s has been done in the present case, the onus lies on the Accused to prove that the entrusted property was dealt by him in an acceptable manner.

Thus, misappropriation with this dishonest intention is one of the most important ingredients of proof of ‘criminal breach of trust’. The offence under Section 409 IPC can be committed in varied manners, and as we are concerned with its applicability in the case of a bank officer, it is fruitful to point out that the banker is one who receives money to be drawn out again when the owner has occasion for it. Since the present case involves a conventional bank transaction, it may be further noted that in such situations, the customer is the lender and the bank is the borrower, the latter being under a super added obligation of honouring the customer’s cheques up to the amount of the money received and still in the banker’s hands. The money that a customer deposits in a bank is not held by the latter on trust for him. It becomes a part of the banker’s funds who is under a contractual obligation to pay the sum deposited by a customer to him on demand with the agreed rate of interest. Such a relationship between the customer and the Bank is one of a creditor and a debtor. The Bank is liable to pay money back to the customers when called upon, but until it’s called upon to pay it, the Bank is entitled to utilize the money in any manner for earning profit.

The Supreme Court acquitted the appellant by giving him the benefit of doubt, but said that his conduct was unbecoming of a bank officer.