A donation is not an entrustment: Delhi High Court quashes FIR against Hemkunt Foundation

Justice Saurabh Banerjee holds that neither criminal breach of trust nor cheating is made out where donors parted with ownership and no complainant claimed to have been deceived.

An FIR alleging that a charitable trust cheated the public of Rs 74.55 crore collected for Covid-19 relief has been quashed by the Delhi High Court, which held that money given as a donation cannot be the subject of criminal breach of trust because the donor parts with ownership the moment the gift is accepted. Justice Saurabh Banerjee also recorded that no donor ever complained: the case was registered on secret information and the complaint of a sub-inspector who was never the aggrieved person. With neither Section 406 nor Section 420 of the Indian Penal Code made out, the conspiracy charge under Section 120B could not stand on its own, and the FIR of January 2022 and all proceedings flowing from it were set aside.

Secret information, and Rs 38.31 crore moved to buy land

According to the FIR, registered on 22 January 2022 at the Special Cell in Delhi, secret information was received about suspicious financial activity by the Hemkunt Foundation. An enquiry was said to have found that the Foundation, on the pretext of providing relief to people suffering in the pandemic and particularly by posting emotional photographs and videos, collected approximately Rs 74.55 crore in donations from the general public and from corporate entities into its bank accounts. Out of that it created fixed deposits and transferred Rs 38.31 crore to a firm, M/s Dhruva Healthcare LLP, to purchase land. The enquiry also recorded that the firm had been incorporated in 2006 as a private limited company, had no business activity until July 2021, and was converted into a limited liability partnership in August 2021.

The Foundation, a public charitable trust constituted in February 2010, said it had been engaged in large-scale humanitarian work since inception, including disaster relief in flood-affected states and support for farmers, and that during the pandemic it supplied oxygen cylinders, medical kits, ration and food in operations recognised nationally and internationally. Its case was that the FIR was retaliation for the sewa it rendered during the farmers' agitation: the Income Tax Department had first conducted search proceedings in which no incriminating material was found, after which the trust and its trustees were implicated under the Prevention of Money-Laundering Act, 2002, for which a scheduled offence was contrived by getting this FIR registered.

On the specifics, the Foundation argued that the allegation of diverting funds could not stand because the chargesheet itself showed that the firm owned property and had a financial history, which negated the suggestion that it was a sham; that the Rs 38.31 crore was traceable to identifiable assets; and that there was no allegation of personal gain or siphoning, so that using trust money for the trust's other charitable objects could not amount to cheating in law. As for the fixed deposits, creating them from the trust's current account to earn interest could not be misappropriation when the funds remained traceable within the banking system, which negated any dishonest conversion; at best the allegation concerned the application of funds, which cannot be criminalised. It added that there was no victim and no injured person at all, and that a sub-inspector acting on secret information had no locus standi to set the criminal law in motion — relying on a coordinate Bench decision that criminal proceedings begun without a victim or injured person are an abuse of the process of law — and that the statement of a witness from Gujarat relied on by the prosecution was hearsay from a person who was admittedly not a donor.

For the State, the Additional Public Prosecutor submitted that the investigation prima facie disclosed the offences. Donations had been solicited through social media campaigns, crowdfunding platforms and public appeals with specific representations that the funds would be used exclusively for Covid-19 relief, including the procurement of oxygen cylinders, oxygen concentrators, medicines and other emergency medical supplies. On those representations thousands of individual donors and various corporate entities had parted with substantial amounts, as the narrations accompanying several of the transactions themselves showed.

An FIR with no aggrieved person

The Court took the absence of a victim first. The FIR was the product of secret information about suspicious financial activity, on the complaint of a sub-inspector who was admittedly never an aggrieved person or a victim, and that, the Court held, rocks the very foundation of the FIR, because the essence of what Sections 406 and 420 require is then missing.

It drew on the reasoning of a coordinate Bench in a case where a company had forwarded 1.5 million US dollars to the accused and never complained of being cheated, the complaint having been made by a person who was merely an informant. Nothing had emerged even during investigation to show any person who was aggrieved or cheated, so the offence of cheating was not established even taking all the allegations as admitted; and by the same logic no one had claimed to have entrusted property or to have had it misappropriated.

Why there was nothing to entrust

On criminal breach of trust the Court set out the ingredients as stated by the Supreme Court in Delhi Race Club (1940) Ltd. v. State of Uttar Pradesh and earlier in S.W. Palanitkar v. State of Bihar: first, an entrustment of property or of dominion over property; second, that the person so entrusted dishonestly misappropriates or converts it to his own use, or dishonestly uses or disposes of it, or wilfully suffers another to do so; and third, that this is in violation of a direction of law prescribing how the trust is to be discharged, or of a legal contract touching its discharge. Entrustment, it noted, requires that ownership not pass.

The Court read that against CBI v. Duncans Agro Industries Ltd., where the expressions “entrusted with property” and “with any dominion over property” were held to be used in a wide sense, covering all cases in which goods are voluntarily handed over for a specific purpose and dishonestly disposed of in violation of law or contract. What that decision requires, however, is that the ownership or beneficial interest in the property be in someone other than the accused, who holds it on that person's account or for that person's benefit — the relationship of trustee and beneficiary, bailor and bailee, master and servant, or pledger and pledgee.

That is precisely what a donation is not. It was an unrebutted fact, denied neither by the prosecution nor by those who gave the money, that what the Foundation received was donations. Taking the meaning of “donation” from Black's Law Dictionary as a gift especially to a charity, and the definition of a gift in Section 122 of the Transfer of Property Act, 1882 as a voluntary transfer of property without consideration from donor to donee, accepted by or on behalf of the donee, the Court held that once a donation is voluntarily made and accepted, the donor ceases to have any ownership or beneficial interest in what was given. The Calcutta High Court had said the same in Madhab Bhattacharjee v. State of West Bengal.

From that it followed that there was no entrustment by any donor, and therefore no misutilisation of the money — whether by purchasing land from the firm, by creating fixed deposits, or by failing to account for utilisation through reports, bills and supporting documents. In the absence of any entrustment there can be no criminal breach of trust, and the FIR under Section 406 was not sustainable.

Emotional appeals are not deception

On cheating the Court set out the ingredients of Section 415 — fraudulent or dishonest inducement of a person; the person so deceived being induced to deliver property or to consent to its retention; and being intentionally induced to do or omit what he would not otherwise have done. It restated the settled requirement that the dishonest or fraudulent intention must exist from the very inception of the transaction, and that a failure to honour a promise, or a subsequent deviation from it, without such intention is not cheating.

Nothing in the allegations in the FIR, and not an iota of the material collected during investigation, suggested dishonest or fraudulent intent. The Court pointed to the prosecution's own position in the money-laundering proceedings arising out of this very FIR, which is that the Foundation spent a substantial Rs 5.18 crore on Covid-19 relief activities. Merely soliciting donations on an emotional appeal does not make out deception; and even assuming for argument that the funds were used in a manner inconsistent with the purpose for which they were solicited, that cannot by itself constitute cheating in the absence of material showing deception and dishonest intention at the inception. The FIR under Section 420 was equally unsustainable.

Order

Because the allegations in the FIR and the material collected afterwards did not disclose the essential ingredients of either Section 406 or Section 420, the Court held that no offence under Section 120B could independently be maintained or tried, and that the FIR could not itself survive.

FIR No. 18/2022 dated 22 January 2022, registered at Police Station Special Cell, Delhi, and all consequential proceedings arising from it were quashed. The petition, along with the pending application, was allowed and disposed of.