Trustee Who Diverts Sale Proceeds of Charitable Trust Is an 'Agent' Under Section 409 IPC, Not Exempt From Criminal Breach of Trust: Bombay High Court

"Payment of consideration to the petitioner was by way of entrustment in his capacity as agent of the trust", In a significant ruling that sharpens the boundary between trusteeship and criminal liability, the Bombay High Court has held that a trustee-secretary of a public charitable trust, specifically entrusted with executing a property sale and receiving its consideration, acts as an "agent" within the meaning of Section 409 of the Indian Penal Code — and alleged diversion of sale proceeds to his own trust prima facie constitutes criminal breach of trust in that aggravated form. The ruling came in a writ petition challenging the rejection of a default bail application, with Justice N. J. Jamadar dismissing the petition on 11th March, 2026.

The judgment lays down a crucial distinction that will resonate across trust law and criminal law practice: while a trustee is the legal owner of trust property under Section 3 of the Indian Trusts Act, 1882, he is not its beneficial owner — and when specifically tasked with executing a transaction on behalf of the trust, that specific engagement clothes him with the character of an agent, attracting the heavier criminal exposure of Section 409 IPC, with its 90-day authorised period of custody under the proviso to Section 167(2) Cr.P.C.

Background of the Case

Shejar Chhaya Trust, Devdal, a public charitable trust established in 1984 for providing shelter and education to orphan children, lies at the centre of the dispute. Robert Gragery D'Souza, who became the Secretary of the Trust on 28th December, 2019, was entrusted by the Chief Trustee with a specific responsibility: to obtain the sanction of the Charity Commissioner for the sale of 21 Guntha of trust land out of a total holding of 40 Guntha at Survey No. 63.

The prosecution alleges that the petitioner filed an application before the Charity Commissioner in December 2020 to sell the entire Survey No. 63 and an additional Survey No. 16 — a combined area of 116.60 Guntha — on the basis of false statements and forged documents. He allegedly obtained the Charity Commissioner's sanction in September 2023 for the sale of this far larger area to R. K. Developers for Rs. 6,21,00,000. Of this amount, an advance of Rs. 1,20,00,000 was received by the petitioner in July 2021, which he allegedly did not deposit into the trust's Federal Bank account; instead, he opened a new account with Basin Catholic Cooperative Bank by forging the signatures of fellow trustees and eventually transferred the funds to his own D'Souza Education and Charitable Trust.

An FIR was registered in December 2024 initially for offences under Sections 420, 465, 468 and 471 IPC. Section 409 was added subsequently in May 2025. The petitioner was apprehended by Immigration Officers at IGI Airport, New Delhi in October 2025, and produced before the Magistrate at Vasai on 10th October, 2025. His application for default bail filed on 9th December, 2025 — contending that the 60-day period had lapsed without a chargesheet — was rejected by the Magistrate on the ground that Section 409 IPC, which carries a maximum sentence exceeding 10 years, attracted the 90-day period. The writ petition before the Bombay High Court challenged this rejection.

Legal Issues and Court's Observations

The core legal questions before the Court were threefold: first, whether the Magistrate can mechanically rely on the offences invoked in the FIR to determine the authorised period of detention under Section 167(2) Cr.P.C.; second, whether a trustee of a public charitable trust can be said to be an "agent" within the meaning of Section 409 IPC; and third, whether the specific facts of the case — entrustment of a sale transaction and receipt of consideration — prima facie attracted Section 409.

The Magistrate's Duty: No Mechanical Detention

The Court unequivocally affirmed that a Magistrate cannot be a rubber stamp of the investigating agency when it comes to determining an accused's right to default bail. The right under Section 167(2) Cr.P.C. is not an ordinary statutory right — it flows from the constitutional guarantee of personal liberty under Article 21 of the Constitution of India, and once the default in filing the chargesheet is demonstrated, it becomes indefeasible.

"The sections invoked by the Investigating Agency in the F.I.R or remand report cannot be the be-all and end-all of the matter. If the Magistrate does not bestow deserving consideration on the aspect of the applicability of a particular section of the Penal Code, on which the entitlement to bail often hinges, the personal liberty of the accused would be a casualty."

The Court noted with approval its own earlier ruling in Alnesh Akil Somji v. State of Maharashtra that the label of a section invoked would not be decisive — the Magistrate must examine prima facie whether the offence is actually made out.

Trustee as Agent: Resolving the Central Controversy

The petitioner's counsel, Mr. Saurabh Butala, placed heavy reliance on the Supreme Court's three-Judge Bench ruling in W. O. Holdsworth v. State of Uttar Pradesh, which, expounding upon Section 3 of the Indian Trusts Act, 1882, held that a trustee is the legal owner of the trust property, holding it "for the benefit of" the beneficiaries — not "on behalf of" them. The distinction between "for the benefit of" and "on behalf of," counsel argued, meant a trustee could never be an agent of the trust, and therefore Section 409 IPC — which specifically lists "agent" as one of the categories of persons liable — could not apply.

The Court, while fully acknowledging the correctness of the Holdsworth exposition on the nature of trusteeship, held that the principle did not insulate the petitioner. Referring to the Supreme Court's landmark ruling in R. K. Dalmia v. Delhi Administration, the Court noted that the term "agent" in Section 409 IPC is not restricted to professional agents — persons who earn a livelihood from agency work. The Supreme Court in Dalmia had expressly held:

"What Section 409, Indian Penal Code requires is that the person alleged to have committed criminal breach of trust with respect to any property be entrusted with that property or with dominion over that property in the way of his business as an agent. The expression 'in the way of his business' means that the property is entrusted to him in the ordinary course of his duty or habitual occupation or profession or trade."

The Court further drew upon the Supreme Court's ruling in The Superintendent and Remembrancer of Legal Affairs, West Bengal v. S. K. Roy, where it was held that "entrustment" within the meaning of Section 409 may arise "in any manner whatsoever" — covering even cases where the receipt of property was itself fraudulent or improper, and not merely cases of innocent receipt followed by misappropriation.

Applying these principles, the Court reasoned that the petitioner's role went beyond the general trusteeship of property vested in all trustees of the trust. He was specifically tasked with executing the sale transaction — obtaining Charity Commissioner sanction, executing the sale instrument, and receiving the consideration. This specific engagement, the Court held, clothed him with the character of an agent for that particular purpose.

"In the capacity of the trustee of the trust, the Petitioner was entrusted with the task of obtaining the sanction of the Charity Commissioner for the sale of the trust property, execute the instrument and receive the consideration. In breach of the duties of the trustee and specific engagement, the Petitioner allegedly sold a larger area of the property of the trust than resolved, and converted to his own use a part of the consideration dishonestly. The payment of the consideration to the Petitioner was by way of entrustment in the capacity of the accused as an agent of the trust."

The Scope of 'Entrustment' Under Section 409 IPC

The Court also invoked the Supreme Court's ruling in CBI v. Duncans Agro Industries Ltd., which had expansively interpreted the expression "entrusted with property" under Section 405 IPC — noting that the property in respect of which criminal breach of trust can be committed must necessarily belong to some person other than the accused, or the beneficial interest in it must vest in another, with the accused holding it for that other person's benefit. In a trust, it is the beneficiaries who hold the beneficial interest, while legal ownership vests in the trustee — and the sale proceeds received by the petitioner were not his to keep, divert, or appropriate for another trust.

The Court accordingly held that, at the stage of consideration of the default bail application, Section 409 IPC was prima facie attracted to the facts of the case, making the 90-day authorised period of detention under sub-clause (ii) of clause (a) of the proviso to Section 167(2) Cr.P.C. correctly applicable.

Conclusion

Dismissing the writ petition, the Bombay High Court has delivered a ruling that will serve as a significant reference point for criminal courts examining default bail applications in trust-related fraud cases. The judgment crystallises two propositions of lasting importance: first, that Magistrates must independently examine, even if prima facie, whether the offences invoked justify the longer period of custody, as mechanical reliance on police remand reports violates the accused's fundamental right to personal liberty; and second, that a trustee is not categorically beyond the reach of Section 409 IPC merely because trust property vests in him by law — where he is specifically entrusted with a transactional task and betrays that trust, the agency for that purpose is established, and the graver penal provision applies.

The Court, however, took care to clarify that all observations are confined to the determination of the bail prayer and shall not influence the Magistrate in further proceedings in the case.

Date of Decision: 11th March, 2026