Quo Wadis Section 406 IPC

“The judges, in fact, shine with reflected glory, for their judgements verily reflect the erudition and industry of the counsel appearing before them.”

--- Justice H R Khanna, (‘neither roses nor thorns’) 

That shining may sometimes be shading if the thing gets reflected is not shiny. The High Court of Kerala in Gopalkrishna Pillai Vs. State of Kerala (2016 (2) KHC 338: MANU/KE/2734/2015) decided that the contribution to employees’ provident fund deducted by the employer from the salaries of the employees is not the money ‘entrusted’ with the employer within the meaning of Section 405 of the IPC. This raises a reasonable question as to what is the actual meaning of the explanations contained in Section 405 of the IPC, and that of para 32 (3) of The Employees’ Provident Fund Scheme, 1952.

The para 32(3) of the above scheme is as follows:-

“(3) Any sum deducted by an employer or the contractor from the wages of an employee under this Scheme shall be deemed to have been entrusted to him for the purpose of paying the contribution in respect of which it was deducted.”

The explanation 1 to Section 405 of the IPC goes as follows:-

“A person, being an employer of an establishment whether exempted under section 17 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), or not who deducts the employee's contribution from the wages payable to the employee for credit to a Provident Fund or Family Pension Fund established by any law for the time being in force, shall be deemed to have been entrusted with the amount of the contribution so deducted by him and if he makes default in the payment of such contribution to the said Fund in violation of the said law, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid.”

And the explanation 2 is thus:-

“A person, being an employer, who deducts the employees' contribution from the wages payable to the employee for credit to the Employees' State Insurance Fund held and administered by the Employees' State Insurance Corporation established under the Employees' Slate Insurance Act, 1948 (34 of 1948), shall be deemed to have been entrusted with the amount of the contribution so deducted by him and if he makes default in the payment of such contribution to the said Fund in violation of the said Act, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid.”

Now, let’s go to the placitum of the judgement:-

“The above discussion would make it clear that the entrustment in Para 32(3) of the Scheme is not the 'entrustment' as contemplated under Section 405 of the Code. Para 32(3) of the Scheme only creates a fiction of entrustment punishable under Section 14 of the Act and the said entrustment lacks the ingredients of criminal breach of trust under Section 405 of IPC. This being the legal position, even if there is entrustment within the meaning of Para 32(3) of the Scheme, the said fictional entrustment falls short of essential ingredients of the offence of criminal breach of trust under Section 406 IPC and consequently, no prosecution can be initiated against the employee under Section 406 IPC, even though it may be good enough for a prosecution under Section 14 of the Act.”

The reason for the above conclusion is laid as hereunder:-

“8. Under the Act and the Scheme, an employee is statutorily made liable to pay his contribution to the Fund. Statutory liability is also cast on the employer to deduct the contribution of an employee from the wages of the employee. Therefore, once deduction is made, the employee will have no control over the amount deducted. He cannot exercise any act or acts of ownership over the amount so deducted. Therefore, after a particular sum is deducted out of wages of an employee, the employee ceases to remain the owner of the said sum. For the said reason, the money collected by the employer from the employee to be deposited in the Provident Fund Account of the employee, cannot be treated as entrustment of money within the meaning of Section 405 IPC.”

Now it is time to look into the allegations in the prosecution case, which was quashed as per the above decision.

“The prosecution allegation is that the revision petitioner, who was the proprietor of Divya Cashew Export Enterprises, Eruva, deducted Rs. 1,43,024/- for the period from March, 2012 to May, 2012 out of the salary of the employees of his firm towards the employees contribution to the Provident Fund of the employees concerned as provided under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (hereinafter referred as "the Act) and the Employees' Provident Funds Scheme, 1952 (hereinafter referred as "the Scheme"). However, the said amount was not deposited with the authority concerned within the time stipulated as per the Scheme.”

It is not out of place to say here that there is no scope to go beyond the allegations at this stage. The allegations are to be taken as truth for the purpose of charging the accused and also for discharging him. Only consideration required is whether the allegations constitute offence and there is material for the same. So presumably (of fact) the revision petitioner had deducted money from the salaries of the employees and embezzled the same, at least temporarily.

In order to arrive at a conclusion that the entrustment of money as per para 32(3) of the scheme is not an entrustment within the meaning of section 405 of the IPC, the learned Judge relied upon the decision in State of Kerala v. Haridas (1969 KLT 906). It is apposite to understand that the explanations to section 405 have been inserted in the years 1973 and 1975 respectively. Explanation to any Section of law works as an interpretation to that Section. This reduces the work of the interpreters of that Section. Thus, directly, any person who deducts the money from the employees and defalcate it, is answerable under Section 406 of IPC. Another decision relied on by the learned single bench is Ahmed Ramlan v. Smt. Gertie Mathias and Others (MANU/KA/0115/1976). Though this decision is of the year 1976, the main issue raised therein was whether the explanation given to section 405 IPC could be applied retrospectively, making it obvious that the alleged offence took place before the incorporation of the said explanation. So the decision in Ahmed Ramlan was without the backing of the explanations to Section 405 of the IPC.

Let’s have a look on a decision of the Apex Court, rendered in 1980. In Harihar Prasad Dubey Vs. Tulsi Das Mundhra and Ors.( MANU/SC/0129/1980), the Apex Court examined the same issue and held that section 406 of IPC applies in such situation by trusting the decision of High Court of MP reported in Akharbhai Nazarali v. Md. Hussain Bhoi (AIR1961MP37), which says:-

“It may be that the deduction and retention of the employees' contribution is a trust created by virtue of that very fact, or by virtue of a provision in statute or statutory rule. But even apart from the latter, the more fact of telling the employees that it is their contribution to the provident fund scheme and then making a deduction or recovery and retaining it, constitutes the offence of criminal breach of trust.”

The Apex Court in Harihar Prasad (supra) also quoted from its own earlier decision (Jaswantrai Manilal Akhaney v. The State of Bombay: (1956 AIR 575) to explain what constitutes ‘entrustment’ and what is the relationship between the parties to the entrustment. It is thus:-

“When Section 405 which defines "criminal breach of trust" speaks of a person being in any manner entrusted with property, it does not contemplate the creation of a trust with all the technicalities of the law of trust. It contemplates the creation of a relationship whereby the owner of property makes it over to another person to be retained by him until a certain contingency arises or to be disposed of by him on the happening of a certain event. The person who transfers possession of the property to the second party still remains the legal owner of the property and the person in whose favour possession is so transferred has only the custody of the property to be kept or disposed of by him for the benefit of the other party....”

Apart from all the above what is sufficient under section 405 of IPC is either entrustment or ‘any dominion’ over the property. If at all the money entrusted with the employer is not entrustment within the meaning of section 405 of IPC, that person gets dominion over the same. What else is required to constitute offence under section 406 of IPC?

As Justice V Ramkumar observes Judges should be doubly cautious while marking their judgments for publication in law journals. Otherwise their finished products are likely to embarrass and mislead the legal fraternity, particularly the subordinate judiciary.

While reversing the judgement of the High Court of Kerala, wherein it was held that counterfeiting of Dollar Notes is not an offence in India, the Supreme Court (State of Kerala Vs. Mathai Verghese and Ors. (AIR 1987 SC 33)) noted that:-

“The High Court was thus wholly wrong in exerting itself unnecessarily and bending backwards in order to hold that Sections 489A to 489E are not applicable to currency notes other than Indian currency notes. And in holding that counterfeiting of or possessing of counterfeit dollar bills or dollar notes is not an offence under the Indian law, thereby issuing a carte blanche to the counterfeiters of the world to establish their headquarters within the State of Kerala with a view to carry on their activities with impunity under the umbrella unwittingly opened for them by the judgment of the High Court.”

Similarly, in the present setup the employers in Kerala may think that they got license to embezzle the money deducted by them from the salaries of their employees, who are enrolled in Provident Fund Scheme.

All or many of the judgments relied on by the High Court in Gopalkrishna Pillai become irrelevant after the explanations to the Section 405 of IPC came into effect. Relying on irrelevant decision for reaching a correct solution for a new problem is not reasonable. Law is changing every day. Judge made law also contributes to this. Every decision of the constitutional courts has its own impact, more so when it assumes precedential value. The decision in Gopalkrishna Pillai is rendered as if there are no explanations to Section 405 IPC. A decision rendered per incurium doesn’t carry any precedential value. Yet, how many cases charge sheeted for embezzlement of provident fund by the employers in subordinate courts must have been buried alive based on the decision in Gopalkrishna Pillai so far? How many bank accounts of the tycoons are bloomed large gaining supports from Gopalkrishna Pillai with the hard earned money of the poor employees?

The heading is a pilfered one, courtesy to the late Sri T P Kelu Nambiar, Sr. Advocate

Abdul Khader Kunju is an Asst. Public Prosecutor, Peermade