Sunil Sharma v. Hero Fincorp Limited 2025 INSC 1001 - S.405 IPC - Loan Transactions

Indian Penal Code 1860 - Section 405 - The section would not normally cover the case of a loan where the lender advances money to the borrower who intends to use or utilise the money, for the time being, till he is in possession of it, although he may have to return an equivalent amount later on to the lender with or without interest or compensation for the use thereof. The position could be otherwise if a different intention appears in the relevant loan agreement. (Para 10) When a loan is advanced, a relationship of creditor and debtor is created and the money lent is generally to be utilised by the borrower for the purpose it is handed over. If, however, a breach of the direction as to how the money is to be utilised appearing from the relevant loan agreement occasions not because the borrower dishonestly misappropriates the same or converts it for his own use with the intention of causing wrongful gain to himself or wrongful loss to the lender, but because the borrower is forced by circumstances beyond his control to act in violation of the stipulations therein and, violates the same, no offence is committed punishable under Section 406, IPC.  (Para 12)

Indian Penal Code 1860 - Section 405 - The term “entrusted” in Section 405, IPC is crucial and governs both “with property” immediately following it as well as “with any dominion over property” occurring thereafter. Since the word “entrusted” is used, the same implies that there is a trust involving an obligation tied to ownership of the property. This means, a confidence is placed in and accepted by the owner - or declared and accepted by him – for the benefit of another person, or for both that person and the owner. Creation of the trust means the person to whom the property is handed over does not become its beneficial owner even when he is not using it according to the given directions at the time of entrustment of the property- The property, which is entrusted, or in respect of which dominion is passed over, to another person does not even become such person’s property, even temporarily, for him to use as he wishes. (Para 10-11)

Code of Criminal Procedure 1973 - Section 154, 156(3) - Commercial offences’ is one such case where preliminary inquiry being permissible. (Para 17)