2022 (5) TMI 424 - SC - Indian Laws

Dishonor of Cheque - vicarious criminal liability of a partner - acquittal of the accused - whether a partner can be convicted and held to be vicariously liable when the partnership firm is not an accused tried for the primary/substantive offence - Section 138 readwith Section 141 of the Negotiable Instruments Act, 1881 - HELD THAT - It is an admitted case of the respondent Bank that the appellant had not issued any of the three cheques, which had been dishonoured, in his personal capacity or otherwise as a partner. In the absence of any evidence led by the prosecution to show and establish that the appellant was in charge of and responsible for the conduct of the affairs of the firm, an expression interpreted by this Court in GIRDHARI LAL GUPTA VERSUS D.H. MEHTA AND ANR. 1970 (8) TMI 83 - SUPREME COURT to mean a person in overall control of the day-to-day business of the company or the firm , the conviction of the appellant has to be set aside. The appellant may have civil liability and may also be liable under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. However, vicarious liability in the criminal law in terms of Section 141 of the NI Act cannot be fastened because of the civil liability. Vicarious liability under sub-section (1) to Section 141 of the NI Act can be pinned when the person is in overall control of the dayto- day business of the company or firm. Vicarious liability under sub-section (2) to Section 141 of the NI Act can arise because of the director, manager, secretary, or other officer's personal conduct, functional or transactional role, notwithstanding that the person was not in overall control of the day-to-day business of the company when the offence was committed. The provisions of Section 141 impose vicarious liability by deeming fiction which presupposes and requires the commission of the offence by the company or firm. Therefore, unless the company or firm has committed the offence as a principal accused, the persons mentioned in sub-section (1) or (2) would not be liable and convicted as vicariously liable. Section 141 of the NI Act extends vicarious criminal liability to officers associated with the company or firm when one of the twin requirements of Section 141 has been satisfied, which person(s) then, by deeming fiction, is made vicariously liable and punished. However, such vicarious liability arises only when the company or firm commits the offence as the primary offender. The impugned judgment of the High Court confirming the conviction and order of sentence passed by the Sessions Court, and the order of conviction passed by the Judicial Magistrate First Class are set aside. Bail bonds, if any, executed by the appellant shall be cancelled. The appellant is acquitted - Appeal allowed.

Summary

Issues Involved:
1. Vicarious criminal liability of a partner under Section 138 of the Negotiable Instruments Act, 1881.
2. Whether a partner can be convicted and held vicariously liable when the partnership firm is not an accused.

Detailed Analysis:

1. Vicarious Criminal Liability of a Partner under Section 138 of the Negotiable Instruments Act, 1881:

The appellant challenged his conviction under Section 138 of the NI Act, which deals with the dishonour of cheques due to insufficient funds. The key legal question was whether a partner could be held vicariously liable for the offence committed by the firm. The court examined the requirements under Section 141 of the NI Act, which extends vicarious liability to individuals responsible for the conduct of the business of a firm or company.

The court emphasized that the prosecution must prove that the person being prosecuted was in charge of and responsible for the conduct of the business of the firm at the time the offence was committed. The burden initially lies with the prosecution to establish this requirement. The proviso to Section 141(1) provides immunity to a person if they can prove that the offence was committed without their knowledge or that they exercised due diligence to prevent the offence. However, this does not shift the initial burden from the prosecution.

In this case, the complaint and evidence did not establish that the appellant was in charge of and responsible for the conduct of the firm's business. The appellant had not issued any of the dishonoured cheques. Therefore, the court found that the appellant could not be held vicariously liable under Section 141 of the NI Act.

2. Whether a Partner Can Be Convicted and Held Vicariously Liable When the Partnership Firm is Not an Accused:

The court also addressed whether a partner could be convicted when the firm itself was not made an accused. The court referred to previous judgments, including the decision in Aneeta Hada v. Godfather Travels and Tours Private Ltd., which established that for maintaining prosecution under Section 141 of the NI Act, arraigning the company or firm as an accused is imperative. The other categories of offenders can only be brought in on the basis of vicarious liability if the company or firm is prosecuted as the principal offender.

In the present case, the firm was not made an accused or summoned to be tried for the offence. The court concluded that without the firm being prosecuted, the appellant could not be held vicariously liable. This view was supported by previous judgments, including those in Sharad Kumar Sanghi v. Sangita Rane and Himanshu v. B. Shivamurthy, which reiterated that the absence of the company or firm as an accused renders the prosecution of individuals for vicarious liability unsustainable.

Conclusion:

The appeal was allowed, and the appellant's conviction under Section 138 read with Section 141 of the NI Act was set aside. The judgments of the High Court, Sessions Court, and Judicial Magistrate First Class were also set aside. The appellant was acquitted, and any bail bonds executed by him were cancelled. The court did not express any opinion regarding Simaiya Hariramani, who had not appealed. There was no order as to costs.