Viraj Thakur*

This piece argues for the need for statutory intervention in grading (presenting statutory subdivisions of a crime in terms of ingredients, sentencing, etc.) §409 of the IPC, which deals with criminal breach of trust by various classes of agents. First, it engages with scholarship surrounding the definition of white-collar crime. Secondly, the piece considers the penology of Section 409 and provides an overview of the crime, showing that it fits the definition of white-collar crime. Thirdly, it focuses on §409 and demonstrates the lack of gradation in it. Fourthly, it presents the advantages such an intervention would hold. Finally, it briefly proposes what the way forward could look like. This is especially important because the Bharatiya Nyaya Sanhita makes no substantive change to the section. Thus, this paper seeks to add to the growing body of literature surrounding white-collar crime by making a novel contribution to this contested notion in the Indian context.

White-collar crime has been inexorably linked with the landscape of crime in India. Movies are produced on intricate scams that shook the nation, such as the recently released Scam 1992. A recently held panel on white-collar crime is rife with observations of many such scams and the increasing use of means such as the Prevention of Money Laundering Act as a response. With the arrest of sitting Chief Minister of Delhi, Arvind Kejriwal, it has been claimed by the Enforcement Directorate of India that money-laundering is graver than even murder.

The 29^th Law Commission Report (“the 29^th LC Report”), given increasing urbanisation at the time, had identified white-collar crime as a rising problem in India. The Supreme Court of India too has often referenced white-collar crime, identifying it as a source of corruption, noting it has been treated softly despite the economic damage it causes, and saying that it hurts the common man. Most recently, the Punjab & Haryana High Court has reiterated these observations, relying on earlier judgements.

Given the general concern institutions have shown towards white-collar crimes, it is surprising that the statutory embodiments of the crime have not been paid much heed to ,in the Indian Penal Code (“the IPC”).

In this piece, therefore, I examine the need for gradation i.e. statutory subdivisions of a crime in terms of ingredients, sentencing, etc. in §409 of the IPC. To this end, first, I provide a working definition of white-collar crime based on contemporary scholarly work. Secondly, I identify §409 of the IPC as an appropriate subject of this definition. Thirdly, I examine §409 and demonstrate the limited gradation in it. Fourthly, I argue for the need for statutory intervention in grading. Finally, I present brief policy suggestions that can be adopted to implement the aforementioned advantages of grading.

Before moving on, it is important to note that the Bharatiya Nyaya Sanhita (“BNS”), the new criminal code slated to enter into force in India in July 2024, retains the various forms of criminal breach of trust given in §405–409 of the IPC by clubbing them under §316 as different subsections. Throughout this article, I refer to the sections as listed in the IPC. Given that no substantive change has taken place in these sections, across the two codes, particularly §409, the lack of gradation becomes an even more pressing issue that must see change.

I. What is White-collar crime?

Edwin Sutherland was the first to introduce the concept of white-collar crime in the legal realm.  For him, the white-collar criminal is a criminal of high socioeconomic status who violates the laws made to regulate his occupational activities. Sutherland argued that the definition of white-collar crime must be linked to the socioeconomic status of the criminal. The 29^th LC Report holds this as the starting point. However, this report was authored in 1966—scholarship has evolved since then. Thus, there is a need to revisit the definition of white-collar crime.

Two broad schools of thought have arisen with respect to the question of white-collar crime, as identified by Gilbert Geis–the “Populist” and the “Patrician” school. The Populist school adheres to Sutherland’s initial definition, focusing on offences committed by the ‘elite’ while the Patrician school focuses on the specific offences committed, with the class position being a secondary consideration.

Susan Shapiro is one such Patrician scholar who argued that mixing social class and crime may lead to sample selection bias, affecting the ability to study the link between them and thus hampering empirical analysis. Shapiro focuses on white-collar crime being a violation of trust, primarily concerning principal-agent relationships in society. Trust arises from the delegation of responsibility by the principal (whether an individual or an institution) to the agent. Violations of trust, in turn, arise due to information asymmetries and the agent acting in their own self-interest (as against the principal’s), leading to crimes when an illegal gain is the objective. The locus of the crime lies in the act and not the actor.

Geis recognizes the problems with both schools. The link between class bias and white-collar crime (which motivates the Populist view) is more disputed than presumed. The Patrician view, on the other hand, conceals crimes by corporates and those who avoid the criminal justice system altogether due to their class position, as Sutherland argued. Geis instead proposes a hybrid view, believing that Reiss and Biderman’s definition offers a powerful starting point. They define white-collar crimes as violations of the law through the violator’s position of power, influence, or trust in an organisation to an illegal end.

“Position” here refers to the position one holds in an organisation, irrespective of one’s position in society, according to Reiss and Biderman. However, such positions are likely to be linked with class position as well as trust by virtue of being in a position of power, which means that this definition is a balance between the Populist view (not negating class positions) and the Patrician view (focusing on specific violations of the law and of trust).

§409 of the IPC, dealing with criminal breach of trust by public servants in their capacity as such, or bankers, merchants, agents, factors, or brokers in the course of their business, emerges as a perfect subject for study that accounts for the hybrid view proposed by Geiss. This is particularly with respect to gradation. It invokes elements from both ends of the spectrum, which I demonstrate in the next section, with particular emphasis on Shapiro’s framework of trust.

II. The Why and What of Criminal Breach Of Trust

§405 defines criminal breach of trust and has 2 major elements:

1. Entrustment and Dominion: Entrustment implies the entrustment of property or any dominion over property, and involves the creation of a fiduciary relationship. Dominion refers to the control of property that arises out of such entrustment.

2. Dishonest misappropriation: §405 talks about dishonest misappropriation of property, providing a mens rea standard of intention.

§409 in particular deals with criminal breach of trust by public servants in the colour of their office, or by bankers, merchants, factors, brokers, attorneys, and agents in the way of their business.

Shapiro argues that for white-collar crime, there are 2 major norms that are violated, thus resulting in a violation of trust as well—disclosure and disinterestedness norms. The former refers to a duty on the agent to disclose to the principal fully and honestly all that may be relevant, and the latter to placing the principal’s interests above their own. Shapiro argues that errant trustees lie and steal, thus violating disclosure and disinterestedness norms respectively.

In §409 too, disclosure and disinterested norms are violated. With dishonest intent to misappropriate a property that isn’t yours, you lie (by virtue of attempting to or succeeding in misappropriating). By placing your interests as an agent above that of the principal’s, you violate the trust placed in you. This further reinforces §409’s place within the framework. The Supreme Court too has noted that anyone holding a position of trust is subsumed under these sections. §409 also broadly refers to “agents” as being subjects of this provision. This too echoes Shapiro’s focus on the principal-agent relationship as corresponding to white-collar crimes. The name of the offence itself, criminal breach of trust, mirrors the same. 

Having established why §409 fits the definition of white-collar crime with particular emphasis on Shapiro’s framework of trust (a stronger link between these will be established in Section V), I will now move into arguing for gradation in §409, the core of my argument.

III. What Forms Of Grading Are Absent in §409 ?

This section of the piece demonstrates that §409 sees little to no statutory gradation as of now, leaving much up to judicial discretion.

A. Limited trust-based gradation

Looking at §409 itself provides answers. As mentioned earlier, it subsumes public servants, merchants, bankers, attorneys, agents, etc. within it. It provides for a punishment of imprisonment for life, or up to ten years, and a fine. However, is the level of trust between these different kinds of agents the same, or similar enough to provide a blanket punishment?

Shapiro argues, in general, that collective agency relationships i.e. relationships with one principal and multiple agents lead to opacity in dealings, as principals find it impossible to understand the processes carried out for the tasks they designate.

Shapiro also identifies a situation of multiple agents and multiple principals, as in the case of corporations.

However, if we consider public servants, under the hybrid definition of white-collar crime that I considered given §409, I argue that we will find a wider form of the second situation. This is because public servants, by virtue of their occupation, are accountable to not just the immediate agent in front of them, but also the public at large, which is an essential principle of administrative law. The Supreme Court has also observed that the government and its instrumentalities must be accountable to the governed as a whole.

Trust was a consideration even at the time of framing the IPC. For example, with respect to offences against the body, Macaulay mentioned the difficulty of deciding the extent of liability of omissions. All omissions cannot be criminalised—a nurse who lets an infant in her care fall and drown into a tub is intuitively worse than a surgeon who refuses a treatment due to personal commitments, leading to the death of a potential patient. Both of these involve a level of trust—the nurse has a duty of care towards the infant. This is to the exclusion of other possible nurses, which is a high level of trust, unlike the surgeon. Her omission is worse than the surgeons, due to her accepting this higher level of trust. Similarly, if A fails to warn Z that the river ahead is swollen, such that Z dies, then A will be guilty of murder if he is a peon stationed to guide travellers, not if he is a passerby. This mirrors Shapiro’s conception of principal-agent relationships in society. In other words, introducing trust as a consideration in arguing for grading is not a radical reform with respect to legislative intent.

This can be seen particularly in §409 as well. The chapter on criminal misappropriation shows that breaches of trust by strangers are treated less harshly than by those who “enjoy special trust” and are privy to information/authority due to their position, such as public servants. For example, §407 deals with criminal breach of trust by a carrier, while §408 provides for criminal breach of trust by a clerk or servant, both providing lower sentences than §409. Courts too ,at least implicitly, acknowledge the trust placed in public servants as against other kinds of agents. 2 cases may be compared to demonstrate this. These were chosen as they are instances of convictions under only §409 that occurred around roughly the same time.

In Sadhupati Nageswara Rao v State of A.P. (2012), the accused was entrusted with distributing rice free of cost under the Food for Work scheme as a fair-price shop dealer. He was found to have misappropriated and sold 67.25 quintals of rice meant for this scheme (worth about Rs. 84,562) in the black market, in 2002. He was sentenced to 6 months of rigorous imprisonment and a fine of Rs. 1000. The court noted that he was an agent entrusted with government property, and not a public servant. However, they did state that the court cannot take a lenient view, as the entrustment was with respect to essential commodities and was about welfare.

In Rohini Kumar Jana v State of W.B. (2015), the headmaster of a primary school was accused of misappropriating money amounting to Rs. 29,850 in 1997 which was supposed to be used for the construction of a school. He subsequently deposited Rs. 16,000 in the same account in 2002.

Both judgements concern welfare—the former free food and the latter education. Sadhupati deals with misappropriation amounting to Rs. 84,562 while Rohini deals with Rs. 29,850. In fact, the court itself notes that good sense prevailed, seen in the subsequent deposit of Rs. 16,000 (which was simultaneously proof of his dishonest intention). This could have been a mitigating factor showing reformation, as the same court has observed that regret over a period of time can serve the interests of justice. The lower value in Sadhupati could warrant lower punishment. Both offences happened around the same period. Rohini, being decided by the Calcutta High Court after Sadhupati, a Supreme Court decision, may move along the lines of the Supreme Court decision to ensure stare decisis in sentencing.

However, the sentencing meted out was a reduced 2½ years of rigorous imprisonment and a fine of Rs. 15,000. Thus, courts do hold public servants to a different standard than agents due to the greater accountability they owe to the public. This is by, as I have argued, virtue of the trust reposed in them.

The difference is that one is an agent, and the other an aged public servant who was in custody for 2 years until the decision, which played a role as a mitigating factor. 

Hence, introducing trust as a factor for grading particularly §409 is not a radical reform.  It has been at least implicitly considered in the provisions of the IPC and in caselaw.

Moreover, the 29^th LC Report primarily focuses on public servants when considering the length of punishment under §409, stating that the punishment is adequate for public servants and warrants no change. This shows that the primary focus of the ‘back-end’ of lawmaking has been on public officials under the contemplation of §409. The 29^th LC Report does not ask the question whether the punishment provided is fair for the other kinds of agents identified.

Given these reasons, clearly, public officials cannot be held to the same standards as the other agents under §409 if we apply Shapiro’s framework of trust. In other words, §409 is graded in a limited manner based on trust.

B. Lack of value-based gradation

Another form in which grading is absent from §409 is in the form of divisions based on the value of the property misappropriated. If the Supreme Court and the 29^th LC Report note the damage done to the economy via white-collar crimes as a concern (as mentioned in the introduction) then the value of the property misappropriated must also be a consideration.

C. Lack of mens rea based gradation

There is no gradation based on mens rea for criminal breach of trust in the IPC. §409 provides only for ‘dishonest’ misappropriation. However, the IPC does place criminal offenders on a “penal continuum” for other crimes, such as culpable homicide not amounting to murder, as against murder. These offences are differentiated on the basis of the mens rea required of the offender to hold them guilty. No similar distinction is made for §409.

Premeditation is given no value in §409 as well.  Using Shapiro’s conception of principal-agent relations again, premeditated offences under §409 involve a greater breach of trust. The information asymmetry between the principal and agent is greater in premeditation, as the relevant information the agent (the offender) hides from their principals is more since there is a planning phase before the offence. The 29^th LC Report too discusses the need for differing mens rea states for different white-collar offences. Hence, my argument can be seen as a more pointed application of what the LC has already identified as a need.

Given that gradation is missing from §409, why should gradation be introduced? In other words, what are the advantages of gradation?

IV. Advantages Of Gradation

This section draws on multiple scholars to justify gradation at a statutory level by presenting its advantages—namely, improving the efficacy of the theories of punishment, establishing stronger ceiling and proof rights, and ensuring certainty.

A. Improving the efficacy of the theories of punishment

i. Deterrence

It was noted in the 262^nd Law Commission report of India (“the 262^nd LC Report”) that in the theory of deterrence, punishment succeeds when a prospective offender is deterred from committing a crime. Deterrence assumes that people have knowledge of the consequences of an offense they commit. Miriam Baer argues that if statutory labelling of a crime is more precise, people have precise knowledge of the consequences of an offence. Thus, if a state employs consistent statutory labels to signal the seriousness of a crime and those labels cause some nontrivial group of individuals to alter their behaviour, grading offences improves deterrence.

Though this is theoretically sound, deterrence is empirically tenuous. For example, it seems to reduce crime on the face of it at the sentencing stage as judges invoke this theory to justify harsher penalties. Hence it may seem efficacious, because it simply leads to the locking up of more criminals without actually deterring or preventing recidivism.

Yet, deterrence may still be relevant from the point of view of judicial decisions—if judges invoke the theory of deterrence in sentencing, gradation may be helpful in grounding their claims. The same has been stated by the 262^nd LC Report. Most recently, the Gujarat High Court stated the importance of deterrence in upholding societal interests in Thakore Bababhai Virjibhai v. State of Gujarat (2024), showing that it continues to be a relevant factor for judicial consideration. In the context of white-collar crime, the Supreme Court had noted in Mohammad Giasuddin vs State Of Andhra Pradesh (1977) that fines are needed to deter potential white-collar offenders. The Court also observed in Ranchhodlal vs State Of Madhya Pradesh (1964) that harsher penalties are required for those handling public funds to deter others from committing such white-collar crimes. Hence, gradation can help ascertain more precisely what constitutes a harsh enough penalty that sufficiently deters for a given crime.

ii. Retribution and proportionality

The theory of retribution states that criminal punishment is justified by virtue of an offender being deserving of a punishment.Baer argues that if a crime has a label, and that label carries a stigma, then the graded system allows for more precise retribution via a precise label as the stigma is also a part of the punishment. This reflects the theory of proportionality as well. In other words, people would be punished in a more defined manner under a system of gradation. In other words, punishment is more closely linked to the severity of the harm, something the Supreme Court considered to be of importance in Rajbala v State of Haryana (2015). The Court argued that the goal of punishment is not to subject a criminal to the harshest sentence possible, but to ensure justice through an adequate and fair punishment. Hence, I argue that proportionality too is improved via gradation. For example, if A commits a heinous crime and B a ‘lesser’ crime of a similar nature, the graded system allows for a precise sentencing range. It ensures that B is not subject to the same punishment as A, simply because the statute clubs A and B’s crime under the same head owing to their similar nature, ignoring differences in mens rea, damage actually caused, etc.

B. Establishing stronger ceiling and proof rights

Ceiling rights refer to the right of the accused to know the maximum punishment under a statute. Proof rights refer to the right of the accused to not be convicted under a higher category of offence, if charged under a lower one, without new ingredients being proved.

Under §409, the maximum punishment is imprisonment for life, or for ten years, and a fine. Without grading §409, the accused is deprived to a large extent of ceiling and proof rights, as the legislature has prescribed a wide range of punishment and there are no differing ingredients, based on mens rea or otherwise. Thus, proof rights are affected as well—judicial discretion determines sentencing, not different ingredients. Moreover, it has been noted that most punishments under §409 do not usually exceed 4 years of imprisonment, implying 2 ceilings of sentencing. This leads to lesser certainty in the law, which forms my next contention.

C. Ensuring certainty

Baer touches on these concepts throughout her arguments. For example, she argues that gradation allows for greater salience in the law, as graded species of an offence enter the vocabulary of laypeople. Additionally, she references the importance of the legality principle,  which means “that criminal liability and punishment can be based only upon a prior legislative enactment of a prohibition that is expressed.” The Supreme Court, in Mohammed Ishaq v Kazam Pasha (2009) as well as in State of Gujarat v. Lal Singh (2016), too observed the importance of the legality principle, noting that ensuring certainty is an important aspect of the rule of law.

It is in this legality principle that an argument for statutory intervention to ensure certainty lies—a certainty that by itself ought to be a strong reason to grade a crime. If people have a better idea of what a particular offence and what the punishment covered within it entails, this is another way of saying that people have a better idea of what the law means for them. In other words, they know the legal consequences of their action, which Patricia Popelier argues is necessary for proper law-making. As Macaulay identified, the more nearly the amount of punishment could be reduced to a certainty, the better. Ensuring certainty in sentencing to a greater extent than it is currently is important to reduce judicial discretion, to ensure predictability in the law and especially to limit biases. It allows people to better integrate the law into their lives, which is essential for freedom. The Supreme Court recently stated the same in State of Bihar v Shyama Nandan Mishra (2022)–consistent, transparent, and predictable actions by the state are necessary to ensure that citizens can live a life unhindered by the law.

V. Conclusion—The Way Forward

Having taken account of the various scholarly debates surrounding white-collar crime, I have buttressed Reiss and Biderman’s definition of white-collar crime and added an additional element of trust to it, through Shapiro’s framework. I have demonstrated that §409 fits this framework, and then argued for statutory intervention in grading. Given this, I have examined §409 and noted the limited gradation in it along the axes of trust, value of property, and mens rea. Future policymaking must account for this lack of gradation and implement a framework accounting for it, giving due focus to all. As I have argued, subsuming public servants and other agents within its framework is unfair as the trust reposed in both categories greatly differs—hence, public servants may warrant another section. Also, there is some division based on value for certain offences against property in the federal code of the United States, seen in §2B1.1 of the same. No such guidelines are present for Indian courts. Ensuring the same would meet the requirement of value-based gradation, as long as qualitative axes are also considered, which Baer also identifies as a need. Finally, breach of trust in case of wilful misappropriation is lesser than the premeditated, implying that lesser punishment is warranted based on mens rea.

However, judicial discretion could still be maintained with respect to circumstances likely to be more dependent on facts, within a newly graded framework. These can include the level of trust judges perceive as the employee holding, based on official position, responsibilities of the employee, duration they are trustees for, any personal relationship of trust between the employee and the victim, etc. This is necessary because trust exists on a continuum.

Thus, through this piece, I have examined the need for gradation in §409, in the context of white-collar crime in India, an understudied subject.

*Viraj Thakur is a 2nd Year B.A. LL.B (Hons.) at the National Law School of India University, Bangalore and Observer at Law School Policy Review.