Unauthorised alienation of hypothecated machinery prima facie attracts criminal breach of trust under Section 406 IPC.

The applicants obtained a term loan of ₹1.03 crore from Indian Overseas Bank and purchased machinery that was hypothecated to the bank. The bank alleged that the applicants removed and sold the machinery without its consent while the loan remained outstanding.

An FIR was registered under Sections 420, 406 and 120-B IPC; after investigation, a charge-sheet was filed under Section 406 IPC. The Magistrate rejected the applicants’ discharge application under Section 239 CrPC, and the Sessions Court dismissed their revision.

Whether the Trial Court was justified in rejecting the applicants’ application for discharge under Section 239 CrPC.

Whether the allegations that the applicants removed or sold hypothecated machinery without the bank’s consent disclosed a prima facie offence under Section 406 IPC, notwithstanding the bank’s civil recovery proceedings.

Section 405 IPC defines criminal breach of trust, for which entrustment and dishonest misappropriation or conversion are essential; Section 406 IPC prescribes the punishment for that offence.

Under Section 239 CrPC, discharge is appropriate where the charge is groundless; at the charge stage, the court considers whether a prima facie case is disclosed and does not assess the evidence in its entirety.

The Court relied on R.S. Nayak v. A.R. Antulay, (1986) 2 SCC 716, for the principle that where a prima facie case is made out, the charge should be framed.

The application also invoked the High Court’s inherent jurisdiction under Section 482 CrPC.

The Court found that the loan had financed the purchase of machinery hypothecated to the bank, and that the prosecution alleged—and the investigation had found—that the applicants removed or alienated it without the bank’s consent or permission.

Those allegations were sufficient, at the preliminary stage, to disclose a prima facie case under Section 406 IPC. The Court declined to treat the matter as purely civil merely because the bank had also pursued recovery proceedings before the DRT; the existence of those proceedings did not negate the criminal allegations at the discharge stage.

It held that the Trial Court was not required at that stage to weigh the evidence in its totality.

It dismissed the Section 482 application, affirmed the impugned orders and disposed of any pending application.