In today’s modern world, one of the essential features of business operations is the entrustment of valuable business assets such as vehicles, laptops, software, cash advances, inventory, or other property by the business owners to their employees in order to enable them to perform their duties. In such circumstances, certain disputes often arise when employees dishonestly misappropriate, convert, use, or dispose of entrusted assets for purposes other than those for which they were provided, or when, upon termination of employment, they fail to return such assets and instead unlawfully retain or abscond with them. In Pakistan, in such situations, business owners often hurriedly attempt to initiate criminal proceedings against the employees under the guise of criminal breach of trust, the scope of which is often misunderstood and misused, either before or alongside initiating civil proceedings.
This article examines the scope of the criminal legal remedy of criminal breach of trust in the context of employment relationships.
In situations where an employee absconds with a company-provided vehicle, a cashier misappropriates funds from the company’s accounts, an employee diverts company funds for personal use, or retains sale proceeds collected from business vendors, business owners’ first point of action is to initiate criminal proceedings for breach of trust. This remedy is often preferred due to its effectiveness, as the consequences are severe in nature, including the possibility of imprisonment, imposition of fines, or both.
To initiate criminal proceedings, business owners rush to get an FIR registered to exert pressure on the employee, and in the majority of these cases the business owners are usually unsuccessful because the action is taken in a hurried manner. It is a well-established legal position in our jurisdiction that both civil and criminal proceedings relating to one and the same matter can be instituted and ordinarily proceeded with simultaneously. However, time and again when such matters come before the courts, a recurring question is whether such matters are civil or criminal in nature, an issue that carries distinct consequences for the business owners.
Pakistani courts have repeatedly clarified that not every dispute arising out of employment or business arrangements constitutes a criminal offence of breach of trust. The determination largely depends on whether the legal ingredients of criminal breach of trust, as set out in section 405 of the Pakistan Penal Code, 1860 (“PPC”), are satisfied.
The offence of criminal breach of trust under section 405 of the PPC is founded upon two essential elements: Entrustment and dishonest misappropriation. Both elements must coexist. Where they cannot be clearly established, the dispute is likely to be treated as civil or contractual in nature rather than criminal.
For entrustment to be successfully pleaded, the accused must have been entrusted with property or must have been given dominion over the property. Entrustment refers to a situation in which property is given to another person as a trust, whereby confidence is reposed in the recipient and an obligation is created to preserve and return the same property to the person who entrusted it. In such circumstances, the ownership of the property remains with the person giving the property, while the recipient merely receives temporary custody or dominion for a specific purpose. Whereas dominion refers to the right of control or possession over something.
The second element, namely dishonest misappropriation, involves converting the property to their own use, or dishonestly using or disposing of it in violation of any direction of law or of any express or implied legal contract governing the discharge of that trust. The term dishonestly refers to the doing of an act with the intention of causing wrongful gain to one person or wrongful loss to another person.
The courts have drawn a clear distinction between entrustment and ordinary commercial or contractual arrangements. In many business transactions where money or property is invested or sold, or agreements involving payment of profits, agreement to sell or for sale, or where the property or funds are intended to be utilized for a particular purpose rather than preserved for return, the law does not treat such arrangements as entrustment as ownership or beneficial interest in such situations may pass to the recipient.
Accordingly, disputes arising out of such transactions are typically regarded as civil matters, even if one party fails to fulfill a promise or contractual obligation. Further, the mere use of expressions such as ‘trust’ or ‘amanat’ in a commercial context does not, by itself, establish entrustment so as to attract the offence of criminal breach of trust.
In light of the above, where businesses hand over assets to employees without clearly defining the purpose, scope, and conditions of such handover, the arrangement may become ambiguous. In particular, the absence of clear terms regarding use, duration, and return can make it difficult to establish legally enforceable obligations in respect of the property so as to attract the provisions of criminal breach of trust. Consequently, in the event of a dispute, courts may be inclined to view the matter as arising out of a contractual or employment relationship rather than as involving any element of criminality. In such circumstances, the business owners may be limited to pursuing civil remedies rather than criminal proceedings.
It is therefore essential for businesses to structure the handover of business assets in a manner that clearly demonstrates entrustment. One practical step is to ensure that employment agreements and policies are properly drafted setting out clear obligations for the employees, and that the handover of any significant business asset is documented through a written instrument which should clearly state the purpose and scope of the entrustment in accordance with section 405 of the PPC.
Conclusion
The distinction between entrustment and ordinary commercial dealings remains central to determining criminal liability under section 405 of PPC. Courts consistently hold that a mere breach of contract does not constitute criminal breach of trust. Businesses seeking to preserve criminal remedies must therefore structure employment agreements and asset handovers carefully, ensuring clear documentation, retention of ownership, defined scope and purposes, and enforceable return obligations.
This article is published for information purposes only and does not constitute legal advice. For further information, please contact Mian Tariq Hassan ([email protected]) and Ammar Waseem ([email protected])