The Supreme Court in Dilip Hariramani v. Bank of Baroda, held that a person cannot be convicted for an offence of dishonour of cheque under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) merely because he was a partner of the firm which had taken the loan or that he stood as a guarantor for such a loan. Further, that vicarious liability in the criminal law in terms of Section 141 of the NI Act cannot be fastened because of the civil liability.
Case Name: Dilip Hariramani v. Bank of Baroda, Criminal Appeal No. 767 of 2022
In the present case, the Court dealt with an appeal challenging the conviction of the appellant for the dishonour of a cheque issued by the firm where he was a partner. The cheque was signed by Simaiya Hariramani, another partner of the firm. The Complaint filed by the respondent under S. 138 of the NI Act was against Simaiya Hariramani and the appellant, and not against the firm. In fact, there was no mention of the firm in the complaint except in para 8 where the vicarious liability of the partners through the firm was mentioned briefly.
The issue then arises 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 Court relied on various cases to interpret S. 141 of the NI Act, which in sub-section (1) states that where a company commits an offence, 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, as well as the company itself, shall be deemed to be guilty of the offence. However, the accused can take the defence that such an offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such an offence. Further, as per sub-section (2), it has to be proved by the prosecution that such an offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of such person. Therefore, a partner is not vicariously liable for an offence committed by the firm, unless one of the twin requirements is satisfied and established by the prosecution.
The court observed that in the present case, the appellant had not issued any of the three dishonoured checks in his personal capacity or as a partner. Further, the prosecution had failed to establish either of the above two twin conditions.
The court also cited National Small Industries Corporation Limited v. Harmeet Singh Paintal and Another, wherein it was observed that
“…For fastening the criminal liability, there is no presumption that every Director knows about the transaction. Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company.”
Hence, the court concluded that the appellant cannot be convicted merely because he was a partner of the firm which had taken the loan or that he stood as a guarantor for such a loan. As far as his civil liability under the Partnership Act, 1932 and the Indian Contract Act, 1872 is concerned, the same cannot be connected with the criminal liability under the NI Act.
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