Dilip Hariramani Vs Bank of Baroda (Supreme Court of India)
It is common knowledge that complaint under section 138 of the Negotiable Instruments Act, 1881 for dishonour of cheques are usually made against the directors of the company or the partners of the partnership firm and the company or the partnership firm are not arraigned as accused. In a recent judgment of the Apex Court in Criminal Appeal No. 767 of 2022 Dilip Hariramani vs. Bank of Baroda decided on May 9, 2022, the Court has quashed the proceedings u/s 138 of the NI Act against the partners as non maintainable.
The facts of the case are that the partnership firm M/s Global Packaging took loan from Bank of Baroda and the cheques issued by the firm for part payment of loan were dishonoured and proceedings u/s 138 of the NI Act were filed against the partners Dilip Hariramani & Simaiya Hariramani, in their individual capacity, as being liable for the default as per section 20 of the Partnership Act 1932. Both the partners were convicted by the Judicial Magistrate under Section 138 of the NI Act and sentenced to imprisonment for six months & asked to pay Rs. 97,50,000/- as compensation under Section 357(3) of CrPC.
The Sessions Judge on appeal modified the sentence but enhanced the compensation. The High Court of Chhattisgarh dismissing the revision held that the liability under the NI Act is only upon the partners who are responsible for the firm for conduct of its business. The Court also took note that both the partners had furnished guarantees of the amount borrowed by the Firm from the Bank. The High Court held thus:
“15. The only question raised in this revision petition is that the prosecution of the applicants in personal capacity, was not maintainable, appears to be out of place in view of the discussions, which has been made hereinabove. It is liability of a person as a partner of a firm, that has to be given emphasis. Lapse to make a proper mention in the cause title of the complaint would not by itself dis-entitle, the complainant, who has a claim to make and who has entitlement to file a complaint against the partners of the firm. The cause title of the complaint of course does not mention other description of the applicant, but the body of the plaint clearly mentions that the applicants are the partners of M/s. Global Packaging.
16. Section 141 of the Act of 1881 provides as to who shall be deemed as guilty and it mentions the person concerned not a company or the firm. Therefore, the complaint filed against the applicants was not against the provisions of law or against the provision under Section 141 of the Act of 1881.”
Thus the prime issue in the said case before the Apex Court was 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.
The Apex Court drew analogy from the judgment of the Apex Court in State of Karnataka v. Pratap Chand and Others,(1981) 2 SCC 335 wherein prosecution had been initiated under the Drugs and Cosmetics
Act, 1940 against a partnership firm and its partners under Section 348 of the Drugs and Cosmetics Act, which is pari materia to Section 141 of the NI Act. It is pertinent that Section 141 of the NI Act & Section 348 of Drugs & Cosmetics Act deal with offences by companies and the term “director” in relation to a firm means a partner in the firm.
The Apex Court referred to S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Another, (2005) 8 SCC 89 wherein it was held that the erring company shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. The Apex Court in the said case had categorically observed that Section 141(2) of the NI Act does not state that the persons enumerated could include an officer of the company who could not be prosecuted and punished merely because of their status or position as a director, manager, secretary or any other officer, unless the offence in question was committed with their consent or connivance or is attributable to any neglect on their part. The Court also held that the onus under sub-section (2) to Section 141 of the NI Act is on the prosecution and not on the person being prosecuted. Similar observations were made regarding Section 141 of the NI Act by the Apex Court in National Small Industries Corporation Limited v. Harmeet Singh Paintal and Another (2010) 3 SCC 330.
What weighed before the Apex Court in the present case was that the Firm was never made an accused nor even summoned to be tried for the offence. The Apex Court followed the judgment in Dayle De’souza v. Government of India through Deputy Chief Labour Commissioner (C) and Another 2021 SCC OnLine SC 1012, wherein the Apex Court answered the question of whether a director or a partner can be prosecuted without the company being prosecuted. The Court followed it’s earlier judgment in State of Madras v. C.V. Parekh and Another (1970) 3 SCC 491 & Aneeta Hada v. Godfather Travels and Tours Private Ltd., (2012) 5 SCC 66 wherein the difference between the primary/substantial liability and vicarious liability under Section 141 of the NI Act was interpreted and expounded. The Court in Parekh case (supra) had held this:
“3. Learned Counsel for the appellant, however, sought conviction of the two respondents on the basis of Section 10 of the Essential Commodities Act under which, if the person contravening an order made under Section 3 (which covers an order under the Iron and Steel Control Order, 1956), is a company, every person who, at the time the contravention was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly. It was urged that the two respondents were in charge of, and were responsible to, the Company for the conduct of the business of the Company and, consequently, they must be held responsible for the sale and for thus contravening the provisions of clause (5) of the Iron and Steel Control Order. This argument cannot be accepted, because it ignores the first condition for the applicability of Section 10 to the effect that the person contravening the order must be a company itself. In the present case, there is no finding either by the Magistrate or by the High Court that the sale in contravention of clause (5) of the Iron and Steel Control Order was made by the Company. In fact, the Company was not charged with the offence at all. The liability of the persons in charge of the Company only arises when the contravention is by the Company itself.”
In Aneeta Hada case (supra) the Court expressly held thus:
“59. In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the drag-net on the touchstone of vicarious liability as the same has been stipulated in the provision itself. We say so on the basis of the ratio laid down in C.V. Parekh which is a three-Judge Bench decision.“
The Court in the present case finally observed thus:
“14. 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. This view has been subsequently followed in Sharad Kumar Sanghi v. Sangita Rane (2015) 12 SCC 781 Himanshu v. B. Shivamurthy and Another,(2019) 3 SCC 797 and Hindustan Unilever Limited v. State of Madhya Pradesh (2020) 10 SCC 751.
The exception carved out in Aneeta Hada (supra), which applies when there is a legal bar for prosecuting a company or a firm, is not felicitous for the present case. No such plea or assertion is made by the respondent.”
Thus, after the authoritative declaration by the Apex Court, everyone filing complaint u/s 138 of the NI Act should ascertain that the Company/Firm is arraigned along with the directors/partners so that the prosecution u/s 138 is legally maintainable.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
