drawn by the Apex Court in the case of Aneeta Hada (supra) are not
based merely on the fact that the company is a separate legal entity
and juristic person, but these conclusions are drawn on the basis of
the fact that section 141 of the NI Act deals with vicarious liability.
In paras 58 and 59 of the said judgment, referred above, the Apex
Court has referred to the wording in section 141 of the NI Act and
observed that commission of offence by a company is an express
condition precedent to attract vicarious liability of others. It was
further held that the words “as well as the company” appearing in
the section make it absolutely unmistakably clear that when a
company is prosecuted, then only the persons mentioned in the other
categories could be vicariously liable for the offence subject to the
averments in the petition and proof thereof. It was further observed
that the other categories of offenders like directors or partners of the
firm can only be brought in the dragnet on the touchstone of
vicarious liability as the same has been stipulated in the provision
itself.
Thus, the Apex Court has arrived at an irresistible
conclusion that for maintaining the prosecution under section 141 of
the NI Act, arraigning of the company as an accused is imperative,
mainly and mostly on the basis of the vicarious liability of the
directors of the company and not necessarily because the company is
a juristic person and it has its own respectibility. That was an
additional circumstance considered by the Apex Court while holding
that arraigning of a company as an accused is imperative, but the
main basis for arriving at its conclusion was the vicarious liability
which the directors or partners of the firm can have towards the
company and hence without joining the company on the touchstone
of vicarious liability they cannot be prosecuted.
Therefore, the ratio laid down in the case of Aneeta
Hada (supra) can be made equally applicable in the case of
partnership firm also. The partners are liable and sued in their
vicarious liability. Whether the partnership firm is a juristic person
or not is a different aspect. What is important is that a partner of the
firm is arraigned as an accused in the dragnet on the touchstone of
vicarious liability, as is done in the case of directors of the company.
Therefore, there is no reason at all to make any distinction in respect
of the law to be made applicable to partnership firm and the
company.
Moreover, the Legislature has already made it clear that
the company includes any body corporate which includes firm or
other association of individuals and director in relation to a firm
means a partner in the firm. On this count also, when section 141 of
the NI Act and explanation thereto does not make any distinction
between the company and the partnership firm, there is absolutely
no reason to make such distinction while making applicable the law
laid down by the Apex Court in Aneeta Hada (supra) to the
partnership firm merely because in that judgment the Apex Court
was considering the eventuality of nonjoining of the company. The
basic premise of holding either the director or the partner liable for
prosecution being the same that of the vicarious liability. Therefore,
once the company is held to be essential party and that arraigning of
a company as an accused is imperative for prosecution under section
141 of the NI Act, it necessarily follows that arraigning of a
partnership firm is also imperative for prosecution against the
partners under section 141 of the NI Act. The prosecution launched
against only one of the partners of the partnership firm, without
joining the partnership firm, cannot be maintainable and on this very
ground, the process issued against the petitioner is liable to be
quashed and set aside.
17. In this view of the matter, I am also supported by the
judgment of the Delhi High Court in Vijay Power Generators Ltd.
vs. Sumit Seth, 2014 All M.R. (Cri.) Journal 305, wherein also it
has been held that unless the partnership firm is prosecuted and
convicted, the partner thereof cannot be convicted with the aid of
section 141 of the NI Act.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CRIMINAL APPELLATE JURISDICTION
CRIMINAL WRIT PETITION NO. 2909 OF 2013
Philip J. .. Petitioner
V/s
Ashapura Minechem Ltd.
CORAM: DR. SHALINI PHANSALKARJOSHI, J.
DATE OF JUDGMENT: 29 JANUARY 2016
Citation: 2016 ALLMR(CRI)1802
In all these four writ petitions, the parties are one and
same and they raise a common question of law as to whether a
prosectuion launched under section 138 of the Negotiable
Instruments Act (“NI Act” for short) against a partner alone without
joining the partnership firm can be maintainable. Hence, they are
being decided by this common judgment.
2. By these petitions, the original accused is challenging the
order dated 23rd July 2013 in Criminal Revision Petition No.7 of
2012 passed by the learned Additional Sessions Judge, Mangaon,
Dist. Raigad, thereby confirming the order of issue of process dated
3
rd January 2012 in Summary Case No. 312 of 2011 passed by the
learned Judicial Magistrate, First Class, Shrivardhan under section
138 of the NI Act.
3. Brief facts, relevant for deciding the question of law
involved in these petitions, are stated as follows:
The partnership firm of the petitioner by name M/s
Alamgiris and respondent no.1 – a company registered under the
Companies Act, 1956 had entered into an Agreement dated 7th
February 2011 to sell iron ore fines by the petitioner to respondent
no.1. The final contract was entered into between these two parties
on 8th April 2011. As per the Agreement, 1,65,000 MT of iron ore
was to be purchased by respondent no.1. The petitioner was to
supply iron ore together with trucks and barges for loading the iron
ore on board the ship. Under the contract, respondent no.1 paid
Rs.11.75 crores to the petitioner towards the purchase price.
However, on 25th April 2011 the petitioner informed respondent no.1
company that his partnership firm is unable to provide iron ore. As a
consequence of petitioner's failure, respondent no.1 has to pay
Rs.3.60 crores as damages of the vessel and Rs.1.50 crores as
advance payment made to the petitioner. The petitioner promised to
pay Rs.20 crores by way of damages and advance which the
petitioner's firm had received. To satisfy this amount, the petitioner's
firm issued four cheques of Rs.5 crores each drawn on Bank of India,
Tisgaon Branch, Goa. However, when the cheques were presented to
the bank, they came to be dishonoured on 24th August 2011 for want
of sufficient funds. Hence, after issuing the requisite mandatory
notice, respondent no.1 filed four private criminal cases against the
petitioner in respect of the four dishonoured cheques.
The learned Magistrate, after being satisfied, issued
process against the petitioner for the offence under section 138 of
the NI Act. The petitioner challenged the said order of issue of
process by filing criminal revisions in the Court of Additional
Sessions Judge, Raigad. However, as the revisions came to be
dismissed, the petitioner is constrained to approach this Court under
Article 227 of the Constitution of India and section 482 of the Code
of Criminal Procedure for quashing the order of issue of process.
4. At this stage, it may be stated that though several
grounds are raised in the petition challenging the order of issue of
process, at the time of advancing the submissions before this Court,
learned counsel for the petitioner has fairly conceded that he is
challenging the order only on one count, i.e. not joining the
partnership firm of the petitioner in the proceedings launched
against the petitioner. It is submitted that undisputedly the
transaction was entered into by respondent no.1 company with the
petitioner's firm. However, the petitioner's firm is not joined as party
to the complaint. The petitioner alone is sued in his capacity as a
partner, without joining even the other partners of the partnership
firm. According to learned counsel for the petitioner, therefore, the
very complaint filed before the Trial Court is not at all maintainable
in view of the settled position of law that the company is an essential
party to the proceedings initiated under section 138 read with
section 141 of the NI Act.
5. In support of his submissions, learned counsel for the
petitioner has relied upon the legal position as laid down by the
Apex Court in the case of Aneeta Hada vs. Godfather Travels &
Tours Private Limited, (2012) 5 SCC 661, wherein the Supreme
Court has categorically held that for maintaining the prosectuion
under section 141 of the NI Act, arraigning of a company as an
accused is imperative. According to learned counsel for the
petitioner, in view of explanation to section 141 of the NI Act, the
word “company” means any body corporate which includes firm or
other association of individuals and director in relation to a firm
means a partner in the firm. Hence, according to learned counsel for
the petitioner, the law laid down by the Apex Court in the case of
Aneeta Hada (supra) that arraigning of a company as an accused is
imperative in a prosecution under section 141 of the NI Act, is
equally applicable when the prosecution is launched against a
partnership firm. The learned counsel, therefore, submitted that in
the instant case, as the partnership firm is not made an accused and
one of the partner alone is sued, the prosecution itself is not tenable
and on this count the process issued against the petitioner is
required to be quashed and set aside.
6. Per contra, learned counsel for respondent no.1 has
submitted that legally speaking a partnership firm and a company
registered under the Companies Act stand on two different footings.
A partnership firm is not a juristic person. It is not a separate and
distinct legal entity. As against it, a company is a separate juristic
person. Hence, the law laid down in the case of Aneeta Hada
(supra), which was in the context of a company, which is a separate
juristic person, cannot be made applicable in the case of a
partnership firm which is not a separate juristic person. Further,
according to learned counsel for respondent no.1, a decision is only
an authority for what it actually decides. What is the essence of the
decision is the ratio and every judgment must be read as applicable
to the particular facts. He has further submitted that the very basis
for the Apex Court in laying down the law in the case of Aneeta
Hada (supra) holding that arraigning of a company as an accused is
imperative, is that the company is an independent separate juristic
person; as the same is not the case in respect of a partnership firm,
according to him, the law laid down by the Apex Court in the case of
Aneeta Hada (supra) needs to be distinguished and cannot be made
applicable in the case of a partnership firm.
7. In my considered view, in order to appreciate the rival
submissions of the petitioner and respondent no.1, it would be useful
to reproduce section 141 of the NI Act.
“141. Offences by companies. (1) If the person committing
an offence under section 138 is a company, every person who,
at the time the offence 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 offence and shall be liable to be proceeded against
and punished accordingly: Provided that nothing contained in
this subsection shall render any person liable to punishment if
he proves that the offence was committed without his
knowledge, or that he had exercised all due diligence to prevent
the commission of such offence.
Provided further that where a person is nominated as a
Director of a company by virtue of his holding any office or
employment in the Central Government or State Government
or a financial corporation owned or controlled by the Central
Government or the State Government, as the case may be, he
shall not be liable for prosecution under this Chapter.
Notwithstanding anything contained in subsection (1), where
any offence under this Act has been committed by a company
and it is proved that the offence has been committed with the
consent or connivance of, or is attributable to, any neglect on
the part of, any director, manager, secretary or other officer of
the company, such director, manager, secretary or other officer
shall also be deemed to be guilty of that offence and shall be
liable to be proceeded against and punished accordingly.
Explanation.— For the purposes of this section,
(a) “company” means any body corporate and includes a
firm or other association of individuals; and
(b) “director”, in relation to a firm, means a partner in the
firm.
Thus, explanation (a) to section 141 of the NI Act abundantly makes
it clear that the word “company” used in the said section is not
confined in its application only to the company registered under the
Companies Act, but also to the body corporate and specifically
includes a firm or other association of individuals. Explanation (b)
further clarifies the position that the director in relation to a firm
means a partner in the firm. The point, therefore, to be noted and
taken into consideration is that the Legislature is not leaving it to the
imagination or discretion of either the litigating parties or to the
court to decide whether the partnership firm is included in the word
“company” and whether the word “director” can be used in relation
to a partner in the firm. As per the explanation, section 141 of the
NI Act clearly applies not only to the company, but also to the
partnership firm when the offences are committed by a company or a
partnership firm as may be the case.
8. In the case of Aneeta Hada (supra), the question that
arose for determination of the Apex Court was whether an
authorised signatory of a company would be liable for prosecution
under section 138 of the NI Act without the company being
arraigned as an accused. As initially there was difference of opinion
between the two learned Judges regarding interpretation of section
138 of the NI Act, reference was made to the Larger Bench of three
Judges. While deciding the said reference and interpreting sections
138 and 141 of the NI Act, the Supreme Court observed as under:
“53. It is to be borne in mind that Section 141 of the Act is
concerned with the offences by the company. It makes the other
persons vicariously liable for commission of an offence on the
part of the company. As has been stated by us earlier, the
vicarious liability gets attracted when the condition precedent
laid down in Section 141 of the Act stands satisfied. There can
be no dispute that as the liability is penal in nature, a strict
construction of the provision would be necessitous and, in a
way, the warrant.
58. Applying the doctrine of strict construction, we are of
the considered opinion that commission of offence by the
company is an express condition precedent to attract the
vicarious liability of others. Thus, the words “as well as the
company” appearing in the Section make it absolutely
unmistakably clear that when the company can be prosecuted,
then only the persons mentioned in the other categories could
be vicariously liable for the offence subject to the averments in
the petition and proof thereof. One cannot be oblivious of the
fact that the company is a juristic person and it has its own
respectability. If a finding is recorded against it, it would
create a concavity in its reputation. There can be situations
when the corporate reputation is affected when a director is
indicted.
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 dragnet 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
(supra) which is a threeJudge Bench decision. Thus, the view
expressed in Sheoratan Agarwal (supra) does not correctly lay
down the law and, accordingly, is hereby overruled. The
decision in Anil Hada (supra) is overruled with the qualifier as
stated in paragraph 37. The decision in Modi Distilleries
(supra) has to be treated to be restricted to its own facts as has
been explained by us hereinabove.”
9. Thus, it has been laid down in unequivocal words in the
abovesaid decision that for maintaining the prosecution against the
director under section 141 of the NI Act, arraigning of a company as
an accused is imperative. In view of explanation to section 141 of
the NI Act referred to above, this legal position needs to be
automatically made applicable in case of prosecution against a
partnership firm also. Therefore, it has to be held that for
maintaining prosecution against a partner under section 141 of the
NI Act, arraigning of partnership firm as an accused is imperative.
10. However, as referred to above, according to learned
counsel for the petitioner, a distinction has to be made between the
partnership firm, which is not a separate juristic and legal entity, and
the company which is a juristic entity. To substantiate his
contention, learned counsel for respondent no.1 has relied upon a
landmark judgment of the Apex Court in the case of Dulichand
Laxminarayan vs. CIT, AIR 1956 SC 354, which has laid down that
a partnership firm cannot be equated with a company as it is not a
corporate entity nor a separate juristic person. Hence, according to
learned counsel for the petitioner, the law which was made
applicable to the company by the Apex Court in the case of Aneeta
Hada (supra) cannot be made equally applicable to the partnership
firm.
11. On the issue of rules relating to binding precedents,
learned counsel for respondent no.1 has relied upon two judgments
of the Apex Court in the cases of Union of India vs. Dhanwanti
Devi, (1996) 6 SCC 44 and Oriental Insurance Co. Ltd. vs. Raj
Kumari & Ors., AIR 2008 SC 403, which elaborate the
circumstances when a judgment can be said to be a binding
precedent.
12. There can hardly be any two opinions that every
judgment must be read as applicable to particular facts provided and
secondly circumstantial flexibility, i.e. one additional or different
fact, can make a world of difference between the conclusions in two
cases. It is also equally true that the judgment in Aneeta Hada
(supra) does not consider the legal realm of the partnership firm
which does not have independent legal existence.
13. However, in my considered opinion, the conclusions
drawn by the Apex Court in the case of Aneeta Hada (supra) are not
based merely on the fact that the company is a separate legal entity
and juristic person, but these conclusions are drawn on the basis of
the fact that section 141 of the NI Act deals with vicarious liability.
In paras 58 and 59 of the said judgment, referred above, the Apex
Court has referred to the wording in section 141 of the NI Act and
observed that commission of offence by a company is an express
condition precedent to attract vicarious liability of others. It was
further held that the words “as well as the company” appearing in
the section make it absolutely unmistakably clear that when a
company is prosecuted, then only the persons mentioned in the other
categories could be vicariously liable for the offence subject to the
averments in the petition and proof thereof. It was further observed
that the other categories of offenders like directors or partners of the
firm can only be brought in the dragnet on the touchstone of
vicarious liability as the same has been stipulated in the provision
itself.
14. Thus, the Apex Court has arrived at an irresistible
conclusion that for maintaining the prosecution under section 141 of
the NI Act, arraigning of the company as an accused is imperative,
mainly and mostly on the basis of the vicarious liability of the
directors of the company and not necessarily because the company is
a juristic person and it has its own respectibility. That was an
additional circumstance considered by the Apex Court while holding
that arraigning of a company as an accused is imperative, but the
main basis for arriving at its conclusion was the vicarious liability
which the directors or partners of the firm can have towards the
company and hence without joining the company on the touchstone
of vicarious liability they cannot be prosecuted.
15. Therefore, the ratio laid down in the case of Aneeta
Hada (supra) can be made equally applicable in the case of
partnership firm also. The partners are liable and sued in their
vicarious liability. Whether the partnership firm is a juristic person
or not is a different aspect. What is important is that a partner of the
firm is arraigned as an accused in the dragnet on the touchstone of
vicarious liability, as is done in the case of directors of the company.
Therefore, there is no reason at all to make any distinction in respect
of the law to be made applicable to partnership firm and the
company.
16. Moreover, the Legislature has already made it clear that
the company includes any body corporate which includes firm or
other association of individuals and director in relation to a firm
means a partner in the firm. On this count also, when section 141 of
the NI Act and explanation thereto does not make any distinction
between the company and the partnership firm, there is absolutely
no reason to make such distinction while making applicable the law
laid down by the Apex Court in Aneeta Hada (supra) to the
partnership firm merely because in that judgment the Apex Court
was considering the eventuality of nonjoining of the company. The
basic premise of holding either the director or the partner liable for
prosecution being the same that of the vicarious liability. Therefore,
once the company is held to be essential party and that arraigning of
a company as an accused is imperative for prosecution under section
141 of the NI Act, it necessarily follows that arraigning of a
partnership firm is also imperative for prosecution against the
partners under section 141 of the NI Act. The prosecution launched
against only one of the partners of the partnership firm, without
joining the partnership firm, cannot be maintainable and on this very
ground, the process issued against the petitioner is liable to be
quashed and set aside.
17. In this view of the matter, I am also supported by the
judgment of the Delhi High Court in Vijay Power Generators Ltd.
vs. Sumit Seth, 2014 All M.R. (Cri.) Journal 305, wherein also it
has been held that unless the partnership firm is prosecuted and
convicted, the partner thereof cannot be convicted with the aid of
section 141 of the NI Act.
18. Considering that by allowing this writ petition, this Court
is quashing the process issued against the petitioner for not joining
the partnership firm, the interests of justice require that liberty be
given to the respondent no.1 to move before the Court of competent
jurisdiction for appropriate relief with a petition under section 14 of
the Limitation Act seeking exclusion of the period during which he
was prosecuting this case.
19. As a result, all the four writ petitions are allowed. The
process issued against the petitioner alone for the offence under
section 138 read with section 141 of the NI Act without joining the
partnership firm stands quashed and set aside. However, it will be
open for the respondent no.1 to move the Court of competent
jurisdiction for appropriate relief with a petition under section 14 of
the Limitation Act seeking exclusion of the period during which he
was prosecuting this case.
20. The writ petitions are disposed of in the aforesaid terms.
(DR. SHALINI PHANSALKARJOSHI, J.)
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