Holding

A Chairman cannot be convicted for criminal breach of trust on the basis of vicarious liability when the prosecution fails to prove a conspiracy or the Chairman's direct personal involvement.

Summary

Jethsur Surangbhai, Chairman of the Jasdan Taluka Sahkari Kharid Vechan Sangh Ltd, was charged under IPC sections 120B, 109, 408, 467 and 471 for alleged conspiracy to commit criminal breach of trust and related misappropriations. The charge of conspiracy failed and the Sessions Court acquitted all accused except one. On appeal, the Gujarat High Court convicted the appellant on three items, relying on the premise that, as Chairman, he was vicariously liable for the acts of other committee members. The Supreme Court held that without proof of a close collusion among all accused or direct personal involvement, vicarious liability could not be attached to the Chairman. It emphasized that mens rea cannot be inferred merely from the position or negligence of the accused. Consequently, the Court found the prosecution had not proved the case beyond reasonable doubt and set aside the conviction. The appeal was allowed and the appellant was acquitted.

Issues considered

Whether a Chairman of a cooperative society can be held criminally liable for breach of trust on the basis of vicarious liability absent proof of personal participation or a proven conspiracy.
Whether the failure of the conspiracy charge precludes conviction under sections dealing with criminal breach of trust and related offences.
Whether negligence or failure to scrutinise transactions can be equated with the requisite mens rea for criminal breach of trust.

Legislation cited

Indian Penal Code, 1860s. 109, s. 120B, s. 408, s. 409, s. 467, s. 471

Subjects

criminal breach of trustconspiracyvicarious liabilitymens reacooperative societyacquittalburden of proof

Judgment

797

JETHSUR SURANGBHAI
A
v.

STATE OF .GUJARAT

.
November 9, 1983 B
'
\ [S. MURTAZA FAZAL ALI, R.B. MISRA AND M.P. THAKKAR, JJ.I

Indian Penal Code_ 1"860, Ss. 120 B, 109, 408, 467 and 471.
4 •
Chairman of Cf!-operative Society along with ot~ers charged with .C
conspiracy to commit criminal breach· of trust-Charge of conspiracy having
• failed-Sessions Court acquitting alt ·but one accused-Appeal by State-High
Court convicting Chairman-Conviction whether valid and legal.

Defalcation of properties-several accused charfied'. with conspiracy-
Prosecution to prove collusion and cohesion timong all occ~sed-Mens rca not to
be excluded-If charge of conspiracy fa·us~Prosecution to prove affirn1at~ve/y that D
accused direCtly and persOna!ly Connected with acts or onlissions.

f ·The appellant was the Chairman_ofan autollo1nous cooperative society
under the control and supCrvision of the State Government. On receipt of com-
plaints about the financial manag~ment of the Society, th~ Registrar. of
Cooperative Societies appointed a special auditor . to audit the Society's E
\ accounts. On the basis of the audit report a charge-sheet was filed against all
the a~Cused for enterin·g into a conSpiracy to co1nmit criminal breach of· trus·t~
The conspiracy charge having failed, al1 the accused except one were acquitted
by the Sessions Judge.

On ~ppeal by the· State, the High Court convicted the appellant in
respeCt of three items, namely, purchase of fertilisers in,volving two transaCtions F
and missing of certain oil engines, On the ground that as Chairn1an of the
Managing Committee he must be held to be vicariously- liable for 8ny order
given or miSappropriation committed by t.he other accused .

• Jn appeal to this Court it wa~ contended on behalf of the· appellant that
no case of defalcation had been made out against the apPe,llant. .G
Allowing the appeal,

HELD: 1: ·The:re was no justification for the High COurt to iiiterfere
.with the appeilant's acquittal.. The.case ag'ainSt -the appellant had not been
proved beyond ·reasonable doubt and .he Was ~rongty· convicted by the High H
Court. (802 D-EJ

..
798 SUPREME COURT REPORTS • (1984) I s.c.ll..

2. In a case Whei-c there was serious defalCation Of the properties,
A unlefs the pr_osecution proved that. there was a _close cohesio_n and collusion
between all the accu.sed which formed the ~ubject matter of a conspiracy,"·it
would be difficult to proVe the charges against the appellant. ·The Charge of
. conspiracy havins fRifod, the most material and integral° patt of the proSecution
story· against the ·appellant disappeared. .1801 B·CJ · ·

B 3. In a criininaJ·case of such serious nature mens rea cannot be excluded. ·~ ·
o·ace the charge of conspiracy has failed the onus· lay on the prosecution to
pfoVe affirmatively that the appellant waS directly and personally. connected
.with a·cts ·or omissions Pertaining to the items purchas~d. [80_1 EJ

4. In the absence of a. cl.1arg~ Or conspiracy the mcr:e fact that the
appellaii.t happened to be the Chairman Of the CommiUec would not niake. him ..
c a
liable.in vi.carious· sense. ·There is· no evidenCe either djrect or :circu1ns1aniial
·to show that apart from approving the puichase of rertilisefs he. knew. tha~ the
fii;-mS from which the. fertilisers werc.pµrchased did nOt exist. lf the Chairman ,,.
was io be made liable then all members of the Commiltee, viz.· Tehsildar and,
oth"ei" nominated mem)?ers would be equ·ally ,liable· because all of them par·ticipa-
ted in the delibel'.ation of the. meetings of the Committee. The. apj)ellant as
. D. Chairffian Of the Sangl;, had to deal with ~ -Jarge variety of m;ltters ·;:and fr
woi.ild not be humanly possible for hirri tO analyse and ·go in.to the details or
every srnall m:itter in order to find out whether· there haS been any criminal
breach of trust .. 1801 0-H;.802 A-BJ

Cw.nNAL APPBLL'TB JURISDICTION:, Criminal Appeal Np. 260
of .1972. . . . ·· ·
E
Appeal by Special leave from the Jud·gment and Order dated
the 22.3.1972 of the Gujarat High Court in Criminal Appeal No. 171
of 1971. .

R.L. Kohli, Ramesh Koh Ii, Naresh K. Shanna and. Vineet Kumar
F forthe App.ellant. . ,. .

M. N; 'Phadke, H. R., Khpnna and R. N. 'Poddar for the
Reipondent ..
•
G The Judgment of t~e Court was delivered by

FAzAL Au, J.. After hearing counsel for the parties, by virtue
of our Order· dated October 4, 1983, we had allowed the appeal and·
acquitted the accused-appellant. We now proceed to s,ive the reasons
H for the said Order. · ·

The appellant was convic.tcd by the High Court under s. 408
read with s. I 090 Indian Penal Code. in respect of criminal breach of
. . ' ' .
JETHSUR v. GUJARAT (Fazal Ali, J.) 799
trust with regard to several items which have been det~iled in the
judgment of the High Court. The appellant was also convicted A
under ss. 471 and 467 read withs. 109 of the I.P.C. Under the first
count (s. 408) the appellant was sentenced· to two years R.I. and a
fine of Rs. HlOO, in default of payment of fine, further six months R.I.
Under the second count (s. 471) he was sentenced to imprisonment
for one year. The High Court further convicted .the appellant B
under s. 409 I.P.C. for having committed breach of trust in respect
of certain oil engines anQ. sentenced him to 3 years R.I. and a fine
of Rs. 1000, in default of payment o.f fine, imprisonment for six
months. Thus, the sum total of the sentences under various sections
mentioned above comes to five years but as the sentences have been
made to run concurrently, the total sentences would be three years c
apart from the fine.

The learned Sessions Judge had acquitted the appellant holding
that the charges framed against him were not proved but the High
Court in an appeal by the State of Gujarat reversed the decision of D
the Sessions Judge and. set aside the appellant's acquittal and
convicted him as aforementioned. ,

·The facts of the ca'e have been detailed in the judgments of
the High Court and the Sessions Judge with clarity and lucidity and
need not be repeated all over again except so far as they are relevant E
for the purpose of deciding the appeal. There was an organisation
known ·as 'Jasdan Taluka Sahkari Kharid Vechan Sangh Ltd.
(hereinafter referred to as the 'Sangh') which was like an autono-
mous cooperative society directly within the control and supervision
of the Government. The appellant was the chairman of the Sangh F
and the other members of the Sangh consisted of two categories, viz.,
members nominated by the Registrar of Cooperative Societies and
those elected by the Sangh itself. The managing Committee of the
Sangh consisted of 8 members out of whom the appellant was the
Chairman ·and A-2 was the Manager while the Tehsildar was the
ex-officio Member of the Sangh. Having received a nnmber of G
complaints against the Sangh, the Registrar of Cooperative Societies
ordered one V. B. Shah to act as special auditor and examine and
audit the accounts of the Sangh for the year 1965-66. On the basis
of the audit report, the Managing Committee was superseded and
an administrator was appointed. Meanwhile the Sangh moved the B
High Court to obtain a stay order ai;ainst the :al'pointment of the
800 • SUPREME COUkT kEPOkTS (1984) I s.c.a.

administrator as a result of which the appointment of the' adminis·
.·A trator was stayed for some time and the stay was vacated in
Jnly 1966. Subsequently, one M. K. Parikh was appointed an
administrator.

The police after usual investigation submitted chargesheet under
B s. 120B, IPC against all the accused for entering into a conspiracy to
commit criminal breach of trust. So far as the appellant is .:oncemed
he was never charged under the sectjons mentioned earlier. The
charge of conspiracy failed and the Sessions Judge acquitted all the
accused except A-3 who was convicted under s.408 to R.:C. for two
years and a fine of Rs.1000. In the instant case, we are only
c concerned with the appellant .who was Chairman of the Managing
Committee.

Mr. Phadke, learned counsel for the respondent, has very
fairly conceded that excepting 3 items he would not press the case
of the prosecution against the appellant. These items are mentioned
D at page 154 of the paperbook and may be extracted as follows :

(!) Item abont purchase of the truck;

(2) Item about purchase of fertilisers;
E
(3) Items of the amounts of Rs. 600 and 1100 received by
accused No. 3 after the .audit was done;

(4) non-finding of five oil engines by the administrator when
he took over charge .

. So far as item No.(!) is concerned, the High Court itself found
that there was absolutely no legal evidence to connect the appellant
with the purchase of the truck and so far as misappropriation by
the appellant in regard to this item is concerned that stands
G disproved.

Coming to the other three items, viz., purchase of fertilisers,
the amounts of Rs. 600 and Rs. 1100 and the missing 'of fi.ve oil
engines, these formed the basis of the conviction of the a}Jpellant
H . by the High Court. Mr. Phadke conceded that he would not press ...,
the case with respect to item No. (1} but would try to show that so !
far as items (2) to (4) are con,cenied the case bas been fully proved
against the appellant. ·
JETHSUR v. GUJARAT (Fazal Ali, J.) 801

Having gone through the judgment of the High Court we find
r ourselves unable to accept the argument 9f Mr. Phadke. The counsel A
f. for the appellant rightly argued with great force and vehemence that
taking the findings of the High Court ex facie no case of defalcation
ofltems (2) to (4) has been made out. In our opinion, the conten·
tion raised by the .counsel for the appellant is well-founded and must
prevail. With due respect what the High Court seems to have missed
is that in a case like this where there was serious defalcation of the
B
properties of the Sangh, unless the prosecution proved that there was
a close cohesion and collusion between all the accused which formed
the subject matter of a conspiracy, it would be difficult to prove the
dual charges particularly against the appellant (A-1). The charge of
«onspiracy having failed, the most material and integral part of the c
prosecution story against the appellant disappears. The only ground
on the basis of which the High Court has convicted him is that as
he was the chairman of the Managing Committee, he must be held
to be vicariously liable for any Order given or misappropriation
committed by the other accused. The High Court, however, has not
referred to the concept of vicarious liability but the findings of the
D
High Court seem to indicate that this was the central idea in the
mind of the High Court for convicting the appellant. In a criminal
case of such a serious nature mens rea cannot be excluded and once
th.!' charge of conspiracy failed the onus lay on the prosecution to
prove affirmatively that the appellant was directly and personally E
connected with acts or omissions pertaining to items 2, 3 and 4. It
is conceded by Mr. Phadke that no such direct evidence is forth-
coming and he tried to argue that as the appellant was chairman of
the Sangh and used to sign papers and approve various tenders,
even as a matter of routine he should have a~ted with care and
caution and his negligence would be a positive proof of his intention F
to commit the offence. We are however nnable to agree with this
somewhat broad statement of the law. In the absence of a charge
of conspiracy the mere fact that the · appellant happened to be the
\ Chairman of the Committee would not make him criminally liable
in a vicarious sense for items 2 to 4. There is no evidence either G
.direct or circumstantial to show that apart from approving the
purchase of fertilisers he knew that the firms from which the fertilisers
were purchased did not exist. Similar is the case with the other'
two items. Indeed, if the chairman was to be made liable then all
members of the Committee, viz, Tehsildar and other nominated H
members, would be equally liable because all .of them ·participated
in the deliberations of the meetings of the Committee, a conclusion
802 SUPREME COURT. REPORTS .(1984] l s.c.il..

w!iich has not even been suggested by the prosecution. As chairman
A of the Sangh the appellant had to deal with a large variety of matters
and it would not be humanly possible for him to analyse and go
into tlie details of every small matter in 'order to find out whether
there has been any criminal breach of trust. In fact, the hero. of the
entire show seems to be A-3 who had so stage-managed the drama
as to shield his guilt and bring the appellant in the forefront. But
they by itself would not be co·nciusive evidence against the appellant.
There is nothing to show that A-3 had either directly or indirectly
informed the appellant regarding the illegal purchase of fertilisers or
the missing of the five oil engines which came to light much later
during the course of the audit. Far from proving the intention the
•
c prosecution has failed to prove that the appellant had any knowledge
of defalcati.on of i~ems 2 to 4, In fact, so far as item 3 is concerned,
even Mr. Phadke conceded that there is no direct evidence to connect
the appellant.
·'
In these circumstances, we do not find any justification for the
D High Cour! to have interfered with.the order of acquittal passed by
the Sessions Judge in favour of the appellant and having _considered
the facts and circumstances of the case, we are clearly of the opinion
that the case against the appellant has not been proved beyond
reasonable doubt and he was wrongly convicted by the High Court.
E Even putting the prosecution case at the highest it cannot be said
that two views .are not reasonably possible,

For the reasons given above, we allow the appeal, set aside the
conviction and sentences imposed by the High Court and acquit the
appellant of the• charges framed against him. The appellant will
F n:ow be discharged from his bail-bonds and need not surrender.

N.V.K. Appoal allowed.