2011 (4) TMI 1202 - SC - Companies Law

Criminal complaint - sections 138 and 141 of the Negotiable Instruments Act 1881 - cheques issued by the accused - bank directed to stop payment - Accused No. 1 is a partnership firm and Accused Nos. 2 to 7 are partners thereof and Accused No. 3 is signatory of the impugned cheques and all partners are looking after day to day affairs of the accused firm and thus the liability as raised by them is joint and several - Held that - there is no legal requirement for the complainant to show that the accused partner of the firm was aware about each and every transaction. On the other hand proviso to section 141 of the Act clearly lays down that if the accused is able to prove to the satisfaction of the Court that the offence was committed without his knowledge or he had exercised due diligence to prevent the commission of such offence he will not be liable of punishment. - But vicarious criminal liability can be inferred against the partners of a firm when it is specifically averred in the complaint about the status of the partners qua the firm. The High Court should not have interfered with the cognizance of the complaints having been taken by the trial court. The High Court could not have discharged the respondents of the said liability at the threshold. Unless parties are given opportunity to lead evidence it is not possible to come to definite conclusion as to what was the date when the earlier partnership was dissolved and since what date the Respondents ceased to be the partners of the firm. Matter restored before trial court.

Summary

Issues:
1. Discharge of accused under sections 138 and 141 of the Negotiable Instruments Act, 1881.
2. Vicarious liability of partners in a firm for criminal offenses.
3. High Court's power to quash criminal proceedings related to offenses committed by companies.

Issue 1: Discharge of accused under sections 138 and 141 of the Negotiable Instruments Act, 1881:
The case involved an appeal against the discharge of accused persons under sections 138 and 141 of the Negotiable Instruments Act, 1881 by the High Court. The Appellant had filed a criminal complaint alleging that the accused issued two cheques that were dishonored. The High Court discharged the accused based on their contention that they had retired from the partnership firm before the issuance of the cheques. However, the Supreme Court held that sufficient averments had been made against the accused, indicating their involvement in the firm at the relevant time. The Court emphasized that the burden of proof of retirement from the firm lay on the accused, and until proven, they could not be discharged of liability. The Court also highlighted that the High Court erred in discharging the accused without allowing for evidence to be presented in trial.

Issue 2: Vicarious liability of partners in a firm for criminal offenses:
The Supreme Court analyzed the vicarious liability of partners in a firm for criminal offenses. The Court noted that the complainant must make specific averments in the complaint to make the accused partners vicariously liable. The Court clarified that for criminal liability to be established, the accused partners need not be aware of every transaction, but they must have been responsible for the conduct of the firm at the time of the offense. The Court emphasized that vicarious criminal liability can be inferred against partners when specific averments about their status concerning the firm are made in the complaint. The Court highlighted that the High Court should not have interfered with the complaints at the threshold and that the final judgment would depend on the evidence presented during trial.

Issue 3: High Court's power to quash criminal proceedings related to offenses committed by companies:
The Supreme Court provided guidance on the High Court's power to quash criminal proceedings related to offenses committed by companies. The Court cautioned that the power to quash criminal proceedings should be exercised carefully, especially in cases involving commercial transactions. The Court emphasized the importance of allowing parties to present evidence before reaching a definite conclusion. Additionally, the Court advised a broad interpretation of the rule of 'specific averment' in cases where there are disputes regarding the composition of the firm. The Court warned against allowing directors or partners to escape prosecution by taking advantage of their own default and stressed that the power to quash criminal proceedings should be exercised with caution.

In conclusion, the Supreme Court set aside the High Court's judgment and directed the trial court to dispose of the criminal complaints filed by the Appellant after giving both sides an opportunity to be heard. The Court emphasized that the trial court should decide the matters in accordance with the law, without being influenced by any observations made in the judgment.