Trust Receipt

A document used in trade finance (particularly for LCs) where the bank releases documents of title to the borrower to take delivery of goods, subject to the borrower holding the goods or their proceeds in trust for the bank. If the borrower sells the goods and does not remit proceeds to the bank, it constitutes criminal breach of trust (BNS S.316 / IPC S.405).

In practice, a trust receipt is a trade-finance device that quietly carries criminal exposure. When goods arrive under a letter of credit, the bank releases the documents of title so the borrower can clear and take delivery, but the borrower holds the goods — or the sale proceeds — in trust for the bank until the bank is paid. The recovery problem arises when the borrower sells the goods and pockets the proceeds instead of remitting them: that diversion is not merely a civil default but can amount to criminal breach of trust under BNS Section 316 (formerly IPC Section 405), because the borrower was a trustee of identified property. Banks therefore document the trust relationship carefully so the entrustment is provable, while borrowers should understand that breaching a trust receipt converts a commercial dispute into a potential criminal matter. The civil recovery and the criminal complaint can run in parallel. Well-advised lenders confirm the trust receipt clearly records the entrustment before releasing title documents.