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In case of hypothecation of property, the goods remain in possession of the owner and for the money lent, an interest is created in that property of the person lending the money. Now, one of the main ingredients of Section 405 of the Indian Penal Code, is entrustment of property. In case of hypothecation is there any entrustment of property because for entrustment there must be transfer of property. Secondly in umpteen no. of cases the Hon’ble Supreme Court has held that for the offence of breach of trust the property in question must belong to a person other than the person to whom property is ensured. In light of above discussion, does selling of hypothecated property amounts to breach of trust?

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In case of hypothecation of property, the goods remain in possession of the owner and for the money lent, an interest is created in that property of the person lending the money. Now, one of the main ingredients of Section 405 of the Indian Penal Code, is entrustment of property. In case of hypothecation is there any entrustment of property because for entrustment there must be transfer of property. Secondly in umpteen no. of cases the Hon’ble Supreme Court has held that for the offence of breach of trust the property in question must belong to a person other than the person to whom property is ensured. In light of above discussion, does selling of hypothecated property amounts to breach of trust?

The entrustment shall not be taken as technically actual transfer of the property. Even if the owner is in possession of the property, he is holding the property as a trustee on behalf of the person from whom money is taken. The Supreme Court has rightly held that for the offence of breach of trust the property in question must belong to a person other than the person to whom property is entrusted, but in your case the property now belongs to the person from whom the money is taken and you are retaining the property on behalf of that person. In your case if you sell the property you are liable for criminal breach of trust. Now suppose if you have handed over the property to the person from whom you have taken the money and if that person has returned you the property as a trustee in that case you are liable for criminal breach of trust. For more specific answer we need the terms of hypothecation agreement. Please refer (1971) 1 SCJ 132 and AIR 1951 Punjab 103.

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