Offence Of Criminal Breach Of Trust U/S 405 IPC Attracted Only If Employer Deducts Amount But Does Not Deposit With EPFO: Karnataka High Court

The Karnataka High Court has said that the offence under Section 405 of the Indian Penal Code, pertaining to criminal breach of trust is attracted only if the employer deducts the amount from the salary/wages of the employee but fails to deposit the amount with the Employees Provident Fund Organisation.

A single judge bench of Justice Suraj Govindaraj allowed a petition filed by Swapna and B Ramesh and quashed the criminal prosecution registered against them under Sections 406, 409 read with Section 34 of the Indian Penal Code.

The court said, “The authorities having proceeded against the petitioners for the offences punishable under Section 406, which relates to an offence under Section 405, unless there is a deduction made by a person who is an employer, the deeming fiction cannot be invoked nor could there be said to be an offence amounting to criminal breach of trust.”

The petitioners are the Secretary, and the Founder Trustee of Sri Balaji Educational Charitable Trust, which imparts education under the name and style of 'Rainbow International School' and 'Rainbow Pre-University College'.

On 26.08.2015, the Enforcement Officer issued a notice to the said School demanding payment of Employee's provident fund dues, for the period from June 2014 to January 2015 in respect of employees of the said organisation. Soon after the receipt of the said notice, the petitioner is stated to have made payments of the due amounts for the demand period, and acknowledgement thereof was issued by the respondent – Authority.

Subsequently, an inquiry notice under Section 7A of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, dated 10.09.2015 came to be issued, in regards to which the authorised representative of the petitioner appeared before the Authority and submitted necessary particulars.

The second respondent then initiated proceedings and passed an order directing to pay a further sum of Rs.31,758 within 15 days vide its order dated 05.04.2016. Another proceeding was conducted on 08.08.2016, directing the Trust to deposit a sum of Rs.14,952, towards alleged interest under Section 7Q and Rs.26,522 towards damages under Section 14B of the EPF Act. This amount was also paid by the Trust on 23.03.2017.

In the interim, the second respondent had also lodged a complaint before the first respondent, Soladevanahalli Police Station, on 19.06.2015.

It was argued that since the basic ingredients of Section 406 of IPC are not satisfied. In so far as Section 409 of IPC is concerned, the contention is that no offence under Section 409 of IPC is made out.

It was stated that in the present case, no deduction had been made by the Trust employer and the petitioners, who were the Secretary and the Founder Trustee of the Trust, cannot be held liable for any offence since no amounts have been deducted or retained by the Trust/employer.

Finally it was said “Even though the complaint was filed against the Trust and the petitioners, in the charge sheet, the Trust has been given up without the Trust, which is allegedly vested with the primary responsibility of deducting the EPF; the proceedings cannot be continued."

The authority opposed the plea contending that Form 12A report was filed on 22.05.2015, which indicates the amount recovered from the employers and the amount payable by the employer. Therefore, it is contended that this report has been accepted, without demur by the petitioners, and the petitioners cannot now contend that there is no amount that has been deducted or retained by the petitioners.

This report itself would be sufficient to hold that there is a deduction made, despite which no deposit has been made, which would attract the provisions of Section 406 of IPC, it was stated.

Findings:

The bench referred to Sections 405 and 406 of the Indian Penal Code and said “A perusal of explanation No.1 to Section 405 would indicate that when a person being an employer deducts the employee's contribution from the wages payable to the employee for credit to a provident fund or family pension fund, the employer shall be deemed to have been entrusted with the amount of the contribution so deducted and if there is a default in the payment of such contribution to the fund in violation of the said law, such person shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law. Therefore, amounting to an offence of criminal breach of trust punishable under Section 406 of IPC.”

Then it said that the counsel for respondent No.2 contended on the basis of Form 12A report that the amount had been deducted, but, on perusal of all the documents that have been produced, it did not indicate any amount that had been deducted by the Trust or the petitioners.

Hence, the question of retention of the same and, therefore, the deeming of fiction under explanation 1 of Section 405 being attracted would not arise, the Court stated.

Further it said “The documents would indicate that on demand made by the authorities concerned, the said amounts have been paid by the employer before the police complaint was lodged. Thus, as of the date on which the complaint was lodged, there is no amount that has continued to be retained by the employer requiring the initiation of criminal proceedings for offences under Section 405 of IPC punishable under Section 406 of IPC.”

Accordingly, it allowed the petition and quashed the proceedings.

Appearance: Advocate P. Prasanna Kumar, for the petitioners.

HCGP M.R. Patil, for R1.

Advocate K.S Venkataramana for R2.

Citation No: 2024 LiveLaw (Kar) 254

Case Title: Swapna & ANR AND State of Karnataka & ANR

Case No: CRIMINAL PETITION NO. 3188 OF 2017

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