CAUSE TITLE:
Dilip Hariramani vs Bank of Baroda
DATE OF ORDER:
09 May 2022
JUDGE(S):
The Hon’ble Mr. Justice Ajay Rastogi
The Hon’ble Mr. Justice Sanjiv Khanna
PARTIES:
Appellant: Dilip Hariramani
Respondent: Bank of Baroda
SUBJECT
The appeal challenged the conviction of the appellant for the dishonour of a cheque issued by the firm in which he was a partner. The cheque was signed by another partner of the firm.
IMPORTANT PROVISIONS
The Negotiable Instruments Act, 1881
Section 138: Dishonour of cheque for insufficiency, etc., of funds in the account
When any cheque is drawn by a person fromhis bank account for the payment of any amount of money to another person and if such cheque, is returned by the bank, due to the insufficient balance in the account, such person shall be deemed to have committed an offence and shall be punished with imprisonment for upto two years, or with a fine which might extend to twice the cheque’s amount, or with both.
Section 141: Offences by companies
If the person committing an offence u/s 138 is a company, every person who, at the time of the offence being committed, was in charge of, and was responsible for the conduct of the company’s business, as well as the company, shall be deemed to be guilty of the offence.
OVERVIEW
- The respondent had granted term loans and cash credit facility to a partnership firm – M/s. Global Packaging for Rs. 6,73,80,000/-.
- It was alleged that in part repayment of the loan, the Firm, through its authorised signatory, Simaiya Hariramani, had issued three different cheques of Rs. 25,00,000/- each. However, the cheques were dishonoured on presentation due to insufficient funds.
- The Bank then issued a demand notice to Simaiya Hariramani u/s 138 of the NI Act.
- The respondent, through its Branch Manager, filed a complaint u/s 138 of the NI Act before the Court of Judicial Magistrate, against Simaiya Hariramani and the appellant. However, the firm was not made an accused in the complaint.
- The appellant and Simaiya Hariramani were convicted by the Judicial Magistrate u/s 138 of the NI Act and sentenced to imprisonment for six months.
- The appellant and Simaiya Hariramani challenged the judgment before the High Court of Chhattisgarh, which was dismissed.
ISSUES
- What is the vicarious criminal liability of a partner?
- Whether a partner could be convicted and held to be vicariously liable when the partnership firm was not an accused?
ARGUMENTS ADVANCED BY THE RESPONDENT
- The respondent had produced a witness who was posted as the Branch Manager of the respondent and had deposed that the Firm was a partnership firm with Simaiya Hariramani as its partner. The Firm had availed term loans and cash credit and gave three cheques of Rs. 25,00,000/- each, which were dishonoured due to ‘insufficient funds’. Even after the demand notice, the accused had not deposited the amount. Thereby, a complaint under Section 138 of the NI Act was filed.
JUDGEMENT ANALYSIS
- The Court referred to an earlier judgment in State of Karnataka v. Pratap Chand and Others [(1981) 2 SCC 335], in which the prosecution had been initiated under the Drugs and Cosmetics Act, 1940 against a partnership firm and its partners. A specific reference was made to the Section 34 of the Drugs and Cosmetics Act, which states that for Section 34, a ‘company’ means a body corporate and includes a firm or association of individuals and a ‘director’ in relation to a firm means a partner in the firm. Therefore, the conviction of the second respondent, one of the partners in the firm, was quashed on the ground that he could not be convicted merely because he had the right to participate in the firm's business in terms of the partnership deed.
- The appellant could not be convicted just because he was a partner of the firm which had taken the loan or that he stood as a guarantor for such a loan. Under the Partnership Act, 1932 a civil liability is created. The guarantor's liability created under the Indian Contract Act, 1872 is also a civil liability. The appellant might have civil liability and would also be liable. However, vicarious liability in the criminal law in terms of Section 141 of the NI Act could not be fastened due to the civil liability. Vicarious liability u/s 141(1) of the NI Act could only be pinned when the person was in overall control of the day-to-day company’s business. Vicarious liability u/s142(2) could be attracted only when the offence was committed with the consent, willingness, or was due to the negligence by a director, manager, secretary, or other officer of the company.
- The demand notice issued by the Bank was served solely to Simaiya Hariramani, the authorised signatory of the Firm. The complaint was also made against Simaiya Hariramani and the appellant. Thus, in the present case, the Firm had not been accused and was also not summoned. Section 141 imposes vicarious liability. Therefore, unless the company or firm had committed the offence as a principal accused, the persons mentioned in sub-section (1) or (2) would not be convicted as vicariously liable. This view had also been followed in the case of Sharad Kumar Sanghi v. Sangita Rane [(2015) 12 SCC 781].
CONCLUSION
- The present appeal was allowed and the appellant's conviction u/s 138 read with Section 141 of the NI Act was set aside. 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 were also set aside. The appellant was acquitted. However, there was no order as to costs.
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