The Madhya Pradesh High Court has clarified a critical distinction in criminal breach of trust cases involving employees in accounting roles, holding that an accountant cannot be convicted under Section 409 IPC unless they occupy a fiduciary position akin to a banker, agent, or public servant. The judgment also extinguishes concurrent convictions under Section 420 IPC where criminal breach of trust is established, reinforcing doctrinal boundaries between fraud and breach of trust.
Background & Facts
The Dispute
The appellant, Brijesh, was employed as an accountant by two companies - Aeon RKB Motors Pvt. Ltd. and Aeon Medical Pvt. Ltd. - both engaged in manufacturing medical ambulances. Between 2005 and 2017, he allegedly misappropriated funds from the companies’ bank accounts and diverted them into personal accounts, subsequently investing the proceeds in securities through Reliance Securities and Sherkhan Pvt. Ltd. An internal audit conducted by KC Vakhariya in 2015 - 16 revealed a discrepancy of Rs. 1.1 crore, later revised to Rs. 1.5 crore upon further investigation. A formal complaint was filed by Senior Manager Rajesh Sharma (PW-1) on 24.04.2017, leading to the registration of Crime No. 154/2017 at Police Station Sec-1, Pithampur, Dhar.
Key Facts
- The appellant was appointed as accountant in both companies effective 2008.
- The companies’ accounts were operated through internet banking; the appellant’s mobile number 99266-02281 was registered for OTP and login credentials.
- Funds were transferred from:
- Aeon RKB Motors Pvt. Ltd. Account No. 31800563128 to appellant’s account No. 0030708596415 (as per Exhibit A/11)
- Aeon Medical Pvt. Ltd. Account No. 31005232732 to appellant’s account No. 0030708596415 (as per Exhibit A/12)
- The appellant’s wife’s account was used to facilitate investments in stock market securities.
- The appellant admitted to his employment, the role of auditor KC Vakhariya, and the authenticity of financial statements (Exhibits A/2, A/3, A/4, A/5) but claimed his accounts were operated by Director Avani Ranjan Tripathi (PW-2) for tax evasion.
- The defense adduced two witnesses: Chayan Roniwal (DW-1, SBI Branch Manager) and Varad Joshi (DW-2, Software Engineer), along with Ex.D/1 (independent auditor’s report) and Ex.D/2 (net banking form).
Procedural History
- 24.04.2017: Crime No. 154/2017 registered at Police Station Sec-1, Pithampur.
- 02.08.2017: Case committed to Court of Sessions by JMFC, Dhar (RCT No. 2286/2017).
- 16.12.2022: Additional Sessions Judge, Dhar, convicted appellant under Section 409 and Section 420 IPC, sentencing him to 7 years RI with Rs. 1 crore fine under Section 409, and 3 years RI with Rs. 500 fine under Section 420, with sentences to run concurrently.
- 23.03.2026: Criminal Appeal No. 7523 of 2023 decided by Madhya Pradesh High Court.
The Parties' Positions
For the Appellant
- Argued that his account was operated by Avani Ranjan Tripathi (PW-2) via internet banking.
- Contended that his role as accountant did not fall within the ambit of Section 409 IPC.
- Relied on Ex.D/1 and Ex.D/2 to show lack of exclusive control over transactions.
- Asserted that the prosecution failed to prove dishonest intent beyond reasonable doubt.
For the Respondent/State
- Maintained that the appellant had exclusive access to company accounts and used them for personal gain.
- Argued that the appellant’s admission of account usage and control over OTP credentials established dominion over property.
- Opposed any reduction in conviction or sentence, citing the magnitude of loss (Rs. 1.5 crore).
Relief Sought
The appellant sought:
- Setting aside of conviction under Section 409 IPC and Section 420 IPC.
- Substitution of conviction under Section 408 IPC.
- Reduction of sentence from 7 years to a proportionate term.
- Cancellation of default sentence of 1 year RI for non-payment of fine.
The Legal Issue
The central questions were: (1) Whether an accountant can be convicted under Section 409 IPC for misappropriation of company funds, or whether Section 408 IPC applies exclusively; (2) Whether conviction under both Section 409 and Section 420 IPC is legally sustainable; and (3) Whether the sentence of 7 years RI with a Rs. 1 crore fine is proportionate to the offense.
Arguments Presented
For the Appellant
The appellant’s counsel argued that Section 409 IPC applies only to persons entrusted with property in specific fiduciary capacities - public servant, banker, merchant, factor, broker, attorney, or agent. An accountant, absent any express designation as agent or broker, falls squarely within Section 408 IPC, which covers clerks or servants. Reliance was placed on Delhi Race Club (1940) Ltd. v. State of U.P. (2024) 10 SCC 690 and Arshad Niyaz Khan v. State of Jharkhand (2025 SCC OnLine 2058) to argue that criminal breach of trust and cheating cannot co-exist where the same transaction forms the basis of both charges. The defense further contended that the trial court ignored material contradictions in prosecution testimony and improperly rejected defense documents.
For the Respondent/State
The State contended that the appellant, despite being termed an accountant, exercised complete control over company accounts, including generating user IDs and receiving OTPs, thereby occupying a position of trust akin to an agent. It argued that the magnitude of the loss (Rs. 1.5 crore) warranted the severity of the sentence and that the trial court’s findings on intent and control were well-supported by documentary and testimonial evidence.
The Court's Analysis
The Court undertook a detailed statutory interpretation of Section 408 and Section 409 IPC. It observed that while Section 409 imposes a higher punishment (up to life imprisonment), it is limited to persons entrusted with property in specific capacities: public servant, banker, merchant, factor, broker, attorney, or agent. The Court held that the term "accountant" is not enumerated under Section 409 and cannot be stretched to include the listed categories absent a clear fiduciary relationship beyond mere employment.
"Going through the above provision, it is crystal clear that in a case of misappropriation by an accountant, the offence only under Section 408 of IPC would be attracted and not the offence under Section 409 of IPC."
The Court further examined the precedent in Delhi Race Club (1940) Ltd. v. State of U.P. and Arshad Niyaz Khan v. State of Jharkhand, noting that where the same act of misappropriation constitutes both criminal breach of trust and cheating, the latter cannot be sustained. The Court held that Section 420 IPC requires proof of fraudulent inducement to deliver property, which was absent here - the funds were already in the appellant’s custody as an employee. The prosecution’s case was rooted in misappropriation, not deception to obtain access.
On sentencing, the Court invoked the principle of proportionality as articulated in Lehna v. State of Haryana (2002) 3 SCC 76 and Deo Narain Mandal v. State of U.P. (2004) 7 SCC 257. It emphasized that punishment must reflect the nature of the offense and the offender’s culpability, not merely the quantum of loss. The Court noted that Section 408 IPC prescribes a maximum of 7 years, and a sentence of 7 years with a Rs. 1 crore fine was excessive for an employee without managerial authority. The Court reduced the sentence to 5 years RI, while upholding the fine amount but reducing the default sentence from 1 year to 6 months RI.
The Verdict
The appellant’s conviction under Section 409 IPC and Section 420 IPC is set aside. He is convicted under Section 408 IPC and sentenced to 5 years rigorous imprisonment with a fine of Rs. 1,00,00,000 (Rupees One Crore). In default of payment of fine, he shall undergo 6 months rigorous imprisonment. The fine shall be paid to Aeon Medical Pvt. Ltd. and Aeon RKB Motors Pvt. Ltd. under Section 357(3) Cr.P.C. The sentence is to be computed from the date of his original conviction.
What This Means For Similar Cases
Accountants Are Covered Under Section 408 IPC, Not Section 409
- Practitioners must ensure that charges against employees in accounting roles are framed under Section 408 IPC, not Section 409, unless they hold a formal fiduciary designation such as agent, broker, or attorney.
- Prosecutors must plead and prove the specific capacity under which the accused was entrusted with property; mere access to accounts does not elevate the offense to Section 409.
Cheating and Criminal Breach of Trust Cannot Be Concurrently Proved
- Where the core allegation is misappropriation of entrusted property, a charge under Section 420 IPC is legally unsustainable.
- Courts must apply Delhi Race Club and Arshad Niyaz Khan to dismiss overlapping charges unless distinct acts of deception to obtain property are separately established.
Sentencing Must Reflect Culpability, Not Just Loss Amount
- The quantum of loss, while relevant, cannot be the sole determinant of sentence.
- Judges must apply the principle of proportionality, considering the accused’s role, authority, and intent.
- A Rs. 1 crore fine may be justified in cases of corporate fraud by directors, but not for mid-level employees without decision-making power.
Documentary Evidence Trumps Oral Denials
- The Court upheld the trial court’s reliance on bank statements, OTP logs, and net banking records to rebut the defense claim of third-party control.
- Practitioners should prioritize digital trail evidence - login credentials, IP logs, transaction timestamps - in proving exclusive control over accounts.
