DILIP HARIRAMANI versus BANK OF BARODA

DILIP HARIRAMANI

BANK OF BARODA

(Criminal Appeal No. 767 of 2022)

MAY 09, 2022

[AJAY RASTOGI AND SANJIV KHANNA, JJ.]

Negotiable Instruments Act, 1881: s. 138 r/w s.141 –Dishonour of cheque – Vicarious liability of partner – On facts,cheque issued by authorised signatory of the partnership firm tothe Bankfor part payment of loan - Dishonour of cheque due toinsufficient funds – Complaint u/s. 138 r/w 141 against appellantand other, being partner of firm – Firm not made an accused –Conviction by trail court and High Court – On appeal, held : s. 141impose vicarious liability by deeming fiction which presupposes andrequires the commission of the offence by the company or firm as aprincipal accused, to make them liable and convicted as vicariouslyliable – Appellant did not issue any cheque, which had beendishonoured, in his personal capacity or otherwise as partner –In the absence of any evidence led by the prosecution to show andestablish that the appellant was in charge of and responsible forthe conduct of the affairs of the firm, the conviction of the appellanthas to be set aside – Appellant cannot be convicted merely becausehe was partner of the firm which had taken the loan or that hestood as guarantor for such loan – Thus, the appellant’sconviction u/s. 138 r/w 141 set aside.

Allowing the appeal, the Court

HELD: 1.1 Sub-section (1) to Section 141 of the NegotiableInstruments Act, 1881 states that where company commits anoffence, every person who at the time the offence was committedwas in charge of and was responsible to the company for theconduct of the business, as well as the company itself, shall bedeemed to be guilty of the offence. The expression ‘every person’is wide and comprehensive enough to include director, partneror other officers or persons. At the same time, it follows that aperson who does not bear out the requirements of ‘in charge ofand responsible to the company for the conduct of its business’

Ais not vicariously liable under Section 141 of the NI Act. Theburden is on the prosecution to show that the person prosecutedwas in charge of and responsible to the company for conduct ofits business. The proviso, which is in the nature of an exception,states that person liable under sub- section (1) shall not bepunished if he proves that the offence was committed without hisBknowledge or that he had exercised all due diligence to preventthe commission of such offence. The onus to satisfy therequirements and take benefit of the proviso is on the accused.Still, it does not displace or extricate the initial onus and burdenon the prosecution to first establish the requirements of sub-Csection (1) to Section 141 of the NI Act. The proviso givesimmunity to person who is otherwise vicariously liable undersub-section (1) to Section 141 of the NI Act. [Para 7][624-B-F]

1.2 Sub-section (2) to Section 141 of the NI Act states thatnotwithstanding anything contained in sub-section (1), where aDcompany has committed any offence under the Act, and it is provedthat such an offence has been committed with the consent orconnivance of, or is attributable to any neglect on the part of anydirector, manager, secretary or other officers of the company,then such director, manager, secretary or other officers of thecompany shall also be deemed to be guilty of that offence andEshall be liable to be proceeded against and punished accordingly.Sub-section (2) to Section 141 of the NI Act does not state thatthe persons enumerated, which can include an officer of thecompany, can be prosecuted and punished merely because of theirstatus or position as director, manager, secretary or any otherFofficer, unless the offence in question was committed with theirconsent or connivance or is attributable to any neglect on theirpart. The onus under sub-section (2) to Section 141 of the NI Actis on the prosecution and not on the person being prosecuted.[Para 8][624-F-H; 625-A-B]G1.3 It is an admitted case of the respondent Bank that theappellant had not issued any of the three cheques, which hadbeen dishonoured, in his personal capacity or otherwise as apartner. In the absence of any evidence led by the prosecution toshow and establish that the appellant was in charge of and

responsible for the conduct of the affairs of the firm, the convictionof the appellant has to be set aside. The appellant cannot beconvicted merely because he was partner of the firm which hadtaken the loan or that he stood as guarantor for such loan.The Partnership Act, 1932 creates civil liability. Further, theguarantor’s liability under the Contract Act, 1872 is civil liability.The appellant may have civil liability and may also be liable underthe Recovery of Debts Due to Banks and Financial InstitutionsAct, 1993 and the Securitisation and Reconstruction of FinancialAssets and Enforcement of Security Interest Act, 2002. However,vicarious liability in the criminal law in terms of Section 141 ofthe NI Act cannot be fastened because of the civil liability.Vicarious liability under sub-section (1) to Section 141 of the NIAct can be pinned when the person is in overall control of theday- to-day business of the company or firm. Vicarious liabilityunder sub-section (2) to Section 141 of the NI Act can arisebecause of the director, manager, secretary, or other officer’spersonal conduct, functional or transactional role, notwithstandingthat the person was not in overall control of the day-to-daybusiness of the company when the offence was committed.Vicarious liability under sub-section (2) is attracted when theoffence is committed with the consent, connivance, or isattributable to the neglect on the part of director, manager,secretary, or other officer of the company. [Para 11][627-B-G]

1.4 The provisions of Section 141 impose vicarious liabilityby deeming fiction which presupposes and requires thecommission of the offence by the company or firm. Therefore,unless the company or firm has committed the offence as aprincipal accused, the persons mentioned in sub-section (1) or(2) would not be liable and convicted as vicariously liable. Section141 extends vicarious criminal liability to officers associated withthe company or firm when one of the twin requirements of Section141 has been satisfied, which person(s) then, by deeming fiction,is made vicariously liable and punished. However, such vicariousliability arises only when the company or firm commits the offenceas the primary offender. [Para 14][630-A-C]

[2022] 4 S.C.R.

1.5 The appellant’s conviction u/s. 138/141 of the NI Act isset aside. The impugned judgment of the High Court confirmingthe conviction and order of sentence passed by the SessionsCourt, and the Judicial Magistrate are set aside.[Para 15][631-B]

BMonaben Ketanbhai Shah and Another v. State ofGujarat and Others (2004) 7 SCC 15 : [2004] 3 Suppl.SCR 411; Aneeta Hada v. Godfather Travels and ToursPrivate Ltd. (2012) 5 SCC 661 : [2012] 5 SCR 503;State of Karnataka v. Pratap Chand and Others (1981)2 SCC 335 : [1981] 3 SCR 200; S.M.S. PharmaceuticalsCLtd. v. Neeta Bhalla and Another (2005) 8 SCC 89 :[2005] 3 Suppl. SCR 371; National Small IndustriesCorporation Limited v. Harmeet Singh Paintal andAnother (2010) 3 SCC 330 : [2010] 2 SCR 805;Girdhari Lal Gupta v. D. H. Mehta and Another (1971)D3 SCC 189 : [1971] 3 SCR 748; State of Karnataka v.Pratap Chand and Others (1981) 2 SCC 335 : [1981]3 SCR 200; Dayle De’souza v. Government of Indiathrough Deputy Chief Labour Commissioner (C) andAnother (2021) SCC OnLine SC 1012; State of Madrasv. C.V. Parekh and Another (1970) 3 SCC 491;ESheoratan Agarwal and Another v. State of MadhyaPradesh (1984) 4 SCC 352 : [1985] 1 SCR 719; AnilHada v. Indian Acrylic Ltd. (2000) 1 SCC 1 : [1999] 5Suppl. SCR 6; Sharad Kumar Sanghi v. Sangita Rane(2015) 12 SCC 781 : [2015] 2 SCR 145; Himanshu v.FB. Shivamurthy and Another (2019) 3 SCC 797 : [2019]1 SCR 991; Hindustan Unilever Limited v. State ofMadhya Pradesh (2020) 10 SCC 751 - referred to.Case Law Reference

CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.767 of 2022.

From the Judgment and Order dated 12.10.2020 of the High Courtof Judicature at Chhattisgarh at Bilaspur in Criminal Revision PetitionNo. 1512 of 2019.

Pramod Kumar Dubey, Sr. Adv., Ravi Sharma, Anjani Kumar Rai,T. Prashar, Prince Kumar, Deep Narayan Sarkar, Advs. for the Appellant.

Ms. Praveena Gautam, Pawan Shukla, Raja Ram, Aman S.Sharma, Aman Rastogi, Advs. for the Respondent.

The Judgment of the Court was delivered by

SANJIV KHANNA, J.

Leave granted.

2. The issues raised in this appeal by the appellant, Dilip Hariramani,challenging his conviction under Section 138[1] read with Section 141 of

1 138. Dishonour of cheque for insufficiency, etc., of funds in the account.—Where anycheque drawn by person on an account maintained by him with banker for paymentof any amount of money to another person from out of that account for the discharge,in whole or in part, of any debt or other liability, is returned by the bank unpaid, eitherbecause of the amount of money standing to the credit of that account is insufficient tohonour the cheque or that it exceeds the amount arranged to be paid from that accountby an agreement made with that bank, such person shall be deemed to have committedan offence and shall, without prejudice to any other provision of this Act, be punishedwith imprisonment for term which may extend to two years, or with fine which mayextend to twice the amount of the cheque, or with both:

Provided that nothing contained in this section shall apply unless—(a) the cheque has been presented to the bank within period of sixmonths[*]from the date on which it is drawn or within the period of its validity, whicheveris earlier;

Athe Negotiable Instruments Act, 1881,[2] are covered by the decisions ofthis Court on the aspects of (i) vicarious criminal liability of partner;and (ii) whether partner can be convicted and held to be vicariouslyliable when the partnership firm is not an accused tried for the primary/substantive offence.B3. We are not required to refer to the facts extensively. Suffice itis to notice that the respondent before us – Bank of Baroda, had grantedterm loans and cash credit facility to partnership firm – M/s. GlobalPackaging[3] on 04[th ]October 2012 for Rs. 6,73,80,000/-. It is alleged thatin part repayment of the loan, the Firm, through its authorised signatory,Simaiya Hariramani, had issued three cheques of Rs. 25,00,000/- eachCon 17[th] October 2015, 27[th] October 2015 and 31[st] October 2015. However,the cheques were dishonoured on presentation due to insufficient funds.On 04[th] November 2015, the Bank, through its Branch Manager, issueda demand notice to Simaiya Hariramani under Section 138 of the NIAct. On 07[th] December 2015, the respondent Bank, through its BranchDManager, filed complaint under Section 138 of the NI Act before theCourt of Judicial Magistrate, Balodabazar, Chhattisgarh, against SimaiyaHariramani and the appellant. The Firm was not made an accused.Simaiya Hariramani and the appellant, as per the cause title, were shownas partners of the Firm. Paragraph 8 of the complaint, which relates tothe vicarious culpability, states:E

“8. That, both accused No. 1 and accused No. 2 are partners ofthe indebted firm. Accused No. 1, as partner of the debtor firm,issued under the obligation of the debtor firm. Thus, under Section20 of the Partnership Act 1932, accused No. 2 is equally responsible

for the underlying authority and liability of the deemed partners.”F

(b) the payee or the holder in due course of the cheque, as the case may be,makes demand for the payment of the said amount of money by giving notice inwriting, to the drawer of the cheque, within thirty days of the receipt of information byhim from the bank regarding the return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of the said amount

Gof money to the payee or as the case may be, to the holder in due course of the chequewithin fifteen days of the receipt of the said notice.Explanation.— For the purposes of this section, “debt or other liability”means legally enforceable debt or other liability.

2 Hereinafter referred to as the ‘NI Act’.

3 Hereinafter referred to as ‘the Firm’.

Other than the paragraph mentioned above, no other assertion orstatement is made to establish the vicarious liability of the appellant.

4. The respondent Bank had produced as witness - PrashantKumar Gartia (PW-1), who was posted as the Branch Manager of therespondent and had deposed that the Firm was partnership firm withSimaiya Hariramani as its partner. The Firm had availed term loans andcash credit and gave three cheques of Rs. 25,00,000/- each, which weredishonoured due to ‘insufficient funds’. Even after the demand notice(Exhibit P-04), the accused had not deposited the amount. Thereby, acomplaint under Section 138 of the NI Act was filed. In his cross-examination, PW-1 admitted that the demand notice had not been issuedto the Firm and that no loan had been obtained by Dilip Hariramani andSimaiya Hariramani in their individual capacity.

5. By judgment dated 19[th] February 2019, the appellant and SimaiyaHariramani were convicted by the Judicial Magistrate First Class,Balodabazar, Chhattisgarh, under Section 138 of the NI Act andsentenced to imprisonment for six months. They were also asked to payRs. 97,50,000/- as compensation under Section 357(3)[4] of the Code ofCriminal Procedure, 1973 and, in default, suffer additional imprisonmentfor one month. An appeal preferred by the appellant and SimaiyaHariramani challenging their conviction was dismissed by the SessionsJudge, Balodabazar, Chhattisgarh, vide judgment dated 21[st] November2019, albeit the appellate court modified the sentence awarded toimprisonment till the rising of the court and at the same time, enhancedthe compensation amount under Section 357(3) from Rs. 97,50,000/- toRs. 1,20,00,000/- with the stipulation that the appellant and SimaiyaHariramani shall suffer additional imprisonment for three months in caseof failure to pay.

6. The appellant and Simaiya Hariramani challenged the judgmentbefore the High Court of Chhattisgarh, which has been dismissed by theimpugned judgment dated 12[th] October 2020. The impugned judgmentprimarily relies upon the decision of this Court in Monaben KetanbhaiShah and Another v. State of Gujarat and Others[5]and observes that

4 357(3): When Court imposes sentence, of which fine does not form part, theCourt may, when passing judgment, order the accused person to pay, by way ofcompensation, such amount as may be specified in the order to the person who hassuffered any loss or injury by reason of the act for which the accused person has beenso sentenced5 (2004) 7 SCC 15

Athe liability under the NI Act is only upon the partners who are responsiblefor the firm for conduct of its business. In the present case, both theappellant and Simaiya Hariramani had furnished guarantees of the amountborrowed by the Firm from the Bank. The exact reasoning given by theHigh Court reads as under:

B“15. The only question raised in this revision petition is that theprosecution of the applicants in personal capacity, was notmaintainable, appears to be out of place in view of the discussions,which has been made hereinabove. It is liability of person as apartner of firm, that has to be given emphasis. Lapse to make aproper mention in the cause title of the complaint would not byCitself dis-entitle, the complainant, who has claim to make andwho has entitlement to file complaint against the partners of thefirm. The cause title of the complaint of course does not mentionother description of the applicant, but the body of the plaint clearlymentions that the applicants are the partners of M/s. GlobalDPackaging.

16. Section 141 of the Act of 1881 provides as to who shall bedeemed as guilty and it mentions the person concerned not acompany or the firm. Therefore, the complaint filed against theapplicants was not against the provisions of law or against theEprovision under Section 141 of the Act of 1881.”

7. Before we refer to the pertinent legal ratio in the case of AneetaHada v. Godfather Travels and Tours Private Ltd.,[6] we would like torefer to an earlier apposite judgment of this Court in State of Karnatakav. Pratap Chand and Others,[7] in which case prosecution had beenFinitiated under the Drugs and Cosmetics Act, 1940 against partnershipfirm and its partners. Reference was made to Section 34[8 ]of the Drugs

6 (2012) 5 SCC 661

7 (1981) 2 SCC 335

8 34. Offences by companies.—(1) Where an offence under this Act has been committedby company, every person who at the time the offence was committed, was in chargeGof, 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 tobe proceeded against and punished accordingly:

Provided that nothing contained in this sub-section shall render any such personliable to any punishment provided in this Act if he proves that the offence was committedwithout his knowledge or that he exercised all due diligence to prevent the commissionHof such offence.

and Cosmetics Act, which is pari materia to Section 141 of the NI Act.Therefore, for the sake of convenience and for deciding the presentappeal, we will reproduce Section 141 of the NI Act:

“141. Offences by companies.—(1) If the person committing anoffence under Section 138 is company, every person who, atthe time the offence was committed, was in charge of, and wasresponsible to the company for the conduct of the business of thecompany, as well as the company, shall be deemed to be guilty ofthe offence and shall be liable to be proceeded against and punishedaccordingly:

Provided that nothing contained in this sub-section shall renderany person liable to punishment if he proves that the offence wascommitted without his knowledge, or that he had exercised alldue diligence to prevent the commission of such offence.

Provided further that where person is nominated as Directorof company by virtue of his holding any office or employment inthe Central Government or State Government or financialcorporation owned or controlled by the Central Government orthe State Government, as the case may be, he shall not be liablefor prosecution under this chapter.

(2) Notwithstanding anything contained in sub-section (1), whereany offence under this Act has been committed by companyand it is proved that the offence has been committed with theconsent or connivance of, or is attributable to, any neglect on thepart of, any director, manager, secretary or other officer of thecompany, such director, manager, secretary or other officer shallalso be deemed to be guilty of that offence and shall be liable tobe proceeded against and punished accordingly.

(2) Notwithstanding anything contained in sub-section (1), where an offenceunder this Act has been committed by company and it is proved that the offence hasbeen committed with the consent or connivance of, or is attributable to any neglect onthe part of, any director, manager, secretary or other officer of the company, suchdirector, manager, secretary or other officer shall also be deemed to be guilty of thatoffence and shall be liable to be proceeded against and punished accordingly.

Explanation.—For the purposes of this section—

(a) “company” means body corporate, and includes firm or other associationof individuals; and

(b) “director” in relation to firm means partner in the firm.

AExplanation.—For the purposes of this section,—(a) “company” means any body corporate and includes firm orother association of individuals; and

(b) “director”, in relation to firm, means partner in the firm.”

BSub-section (1) to Section 141 of the NI Act states that where acompany commits an offence, every person who at the time the offencewas committed was in charge of and was responsible to the companyfor the conduct of the business, as well as the company itself, shall bedeemed to be guilty of the offence. The expression ‘every person’ iswide and comprehensive enough to include director, partner or otherCofficers or persons. At the same time, it follows that person who doesnot bear out the requirements of ‘in charge of and responsible to thecompany for the conduct of its business’ is not vicariously liable underSection 141 of the NI Act. The burden is on the prosecution to show thatthe person prosecuted was in charge of and responsible to the companyDfor conduct of its business. The proviso, which is in the nature of anexception, states that person liable under sub-section (1) shall not bepunished if he proves that the offence was committed without hisknowledge or that he had exercised all due diligence to prevent thecommission of such offence. The onus to satisfy the requirements andtake benefit of the proviso is on the accused. Still, it does not displace orEextricate the initial onus and burden on the prosecution to first establishthe requirements of sub-section (1) to Section 141 of the NI Act. Theproviso gives immunity to person who is otherwise vicariously liableunder sub-section (1) to Section 141 of the NI Act.[9]

8. Sub-section (2) to Section 141 of the NI Act states thatFnotwithstanding anything contained in sub-section (1), where companyhas committed any offence under the Act, and it is proved that such anoffence has been committed with the consent or connivance of, or isattributable to any neglect on the part of any director, manager, secretaryor other officers of the company, then such director, manager, secretaryGor other officers of the company shall also be deemed to be guilty of thatoffence and shall be liable to be proceeded against and punishedaccordingly. Sub-section (2) to Section 141 of the NI Act does not statethat the persons enumerated, which can include an officer of the company,can be prosecuted and punished merely because of their status or position9 S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Another, (2005) 8 SCC 89, para 4 andH9.

as director, manager, secretary or any other officer, unless the offencein question was committed with their consent or connivance or isattributable to any neglect on their part. The onus under sub-section (2)to Section 141 of the NI Act is on the prosecution and not on the personbeing prosecuted.

9. In Pratap Chand (supra), specific reference was made to theExplanation to Section 34 of the Drugs and Cosmetics Act, which statesthat for Section 34, ‘company’ means body corporate and includes afirm or association of individuals, and ‘director’ in relation to firmmeans partner in the firm. Thereafter, the conviction of the secondrespondent, one of the partners in the firm therein, was quashed on theground that he cannot be convicted merely because he has the right toparticipate in the firm’s business in terms of the partnership deed. Thus,notwithstanding the legal position that firm is not juristic person, apartner is not vicariously liable for an offence committed by the firm,unless one of the twin requirements are satisfied and established by theprosecution. This Court gave the following reasoning:

“7. It is seen that the partner of firm is also liable to be convictedfor an offence committed by the firm if he was in charge of, andwas responsible to, the firm for the conduct of the business of thefirm or if it is proved that the offence was committed with theconsent or connivance of, or was attributable to any neglect onthe part of the partner concerned. In the present case the secondrespondent was sought to be made liable on the ground that healong with the first respondent was in charge of the conduct ofthe business of the firm. Section 23-C of the Foreign ExchangeRegulation Act, 1947 which was identically the same as Section34 of the Drugs and Cosmetics Act came up for interpretationin G.L. Gupta v. D.H. Mehta, (1971) 3 SCC 189 where it wasobserved as follows:

“What then does the expression ‘a person in-charge andresponsible for the conduct of the affair of company’ means?It will be noticed that the word ‘company’ includes firm orother association, and the same test must apply to directorin-charge and partner of firm in-charge of business. Itseems to us that in the context person ‘in-charge’ must meanthat the person should be in overall control of the day to daybusiness of the company or firm. This inference follows from

Athe wording of Section 23-C(2). It mentions director, who maybe party to the policy being followed by company and yetnot be in-charge of the business of the company. Further itmentions manager, who usually is in charge of the business butnot in overall charge. Similarly the other officers may be incharge of only some part of business.”B

10. We would also refer to the summarisation of law on Section141 by this Court in National Small Industries Corporation Limitedv. Harmeet Singh Paintal and Another,[10] to the following effect:

“39. From the above discussion, the following principles emerge:

(i) The primary responsibility is on the complainant to make specificaverments as are required under the law in the complaint so as tomake the accused vicariously liable. For fastening the criminalliability, there is no presumption that every Director knows aboutthe transaction.

(ii) Section 141 does not make all the Directors liable for theoffence. The criminal liability can be fastened only on those who,at the time of the commission of the offence, were in charge ofand were responsible for the conduct of the business of thecompany.

E(iii) Vicarious liability can be inferred against company registeredor incorporated under the Companies Act, 1956 only if the requisitestatements, which are required to be averred in the complaint/petition, are made so as to make the accused therein vicariouslyliable for offence committed by the company along with avermentsFin the petition containing that the accused were in charge of andresponsible for the business of the company and by virtue of theirposition they are liable to be proceeded with.

(iv) Vicarious liability on the part of person must be pleaded andproved and not inferred.

xx xx xx

(vii) The person sought to be made liable should be in charge ofand responsible for the conduct of the business of the company at

10 (2010) 3 SCC 330: The case dealt with challenge to summoning order. Withal,Hinterference by the courts at the stage of summoning order is restricted/limited.

the relevant time. This has to be averred as fact as there is nodeemed liability of Director in such cases.”

11. In the present case, we have reproduced the contents of thecomplaint and the deposition of PW-1. It is an admitted case of therespondent Bank that the appellant had not issued any of the threecheques, which had been dishonoured, in his personal capacity orotherwise as partner. In the absence of any evidence led by theprosecution to show and establish that the appellant was in charge ofand responsible for the conduct of the affairs of the firm, an expressioninterpreted by this Court in Girdhari Lal Gupta v. D.H. Mehta andAnother[11] to mean ‘a person in overall control of the day-to-day businessof the company or the firm’, the conviction of the appellant has to be setaside.[12] The appellant cannot be convicted merely because he was apartner of the firm which had taken the loan or that he stood as aguarantor for such loan. The Partnership Act, 1932 creates civil liability.Further, the guarantor’s liability under the Indian Contract Act, 1872 is acivil liability. The appellant may have civil liability and may also be liableunder the Recovery of Debts Due to Banks and Financial InstitutionsAct, 1993 and the Securitisation and Reconstruction of Financial Assetsand Enforcement of Security Interest Act, 2002. However, vicariousliability in the criminal law in terms of Section 141 of the NI Act cannotbe fastened because of the civil liability. Vicarious liability under sub-section (1) to Section 141 of the NI Act can be pinned when the personis in overall control of the day-to-day business of the company or firm.Vicarious liability under sub-section (2) to Section 141 of the NI Act canarise because of the director, manager, secretary, or other officer’spersonal conduct, functional or transactional role, notwithstanding thatthe person was not in overall control of the day-to-day business of thecompany when the offence was committed. Vicarious liability undersub-section (2) is attracted when the offence is committed with theconsent, connivance, or is attributable to the neglect on the part of adirector, manager, secretary, or other officer of the company.

12. The demand notice issued on 04[th] November 2015 by theBank, through its Branch Manager, was served solely to SimaiyaHariramani, the authorised signatory of the Firm. The complaint dated07[th] December 2015 under Section 138 of the NI Act before the Court

11 (1971) 3 SCC 189

12 State of Karnataka v. Pratap Chand and Others, (1981) 2 SCC 335.

Aof Judicial Magistrate, Balodabazar, Chhattisgarh, was made againstSimaiya Hariramani and the appellant. Thus, in the present case, theFirm has not been made an accused or even summoned to be tried forthe offence.

13. The judgment in Dayle De’souza v. Government of IndiaBthrough Deputy Chief Labour Commissioner (C) and Another,[13]answered the question of whether director or partner can beprosecuted without the company being prosecuted. Reference in thisregard was made to the views expressed by this Court in State of Madrasv. C.V. Parekh and Another[14]on the one hand and the divergent viewexpressed in Sheoratan Agarwal and Another v. State of MadhyaCPradesh[15] and Anil Hada v. Indian Acrylic Ltd.[16] This controversywas settled by three Judge Bench of this Court in Aneeta Hada (supra),

13 2021 SCC OnLine SC 1012

14 (1970) 3 SCC 491: “3. Learned Counsel for the appellant, however, sought convictionof the two respondents on the basis of Section 10 of the Essential Commodities ActDunder which, if the person contravening an order made under Section 3 (which covers anorder under the Iron and Steel Control Order, 1956), is 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 proceededagainst and punished accordingly. It was urged that the two respondents were in chargeof, and were responsible to, the Company for the conduct of the business of theECompany and, consequently, they must be held responsible for the sale and for thuscontravening the provisions of clause (5) of the Iron and Steel Control Order. Thisargument cannot be accepted, because it ignores the first condition for the applicabilityof Section 10 to the effect that the person contravening the order must be companyitself. In the present case, there is no finding either by the Magistrate or by the HighCourt that the sale in contravention of clause (5) of the Iron and Steel Control Orderwas made by the Company. In fact, the Company was not charged with the offence atFall. The liability of the persons in charge of the Company only arises when thecontravention is by the Company itself. Since, in this case, there is no evidence and nofinding that the Company contravened clause (5) of the Iron and Steel Control Order,the two respondents could not be held responsible. The actual contravention was byKamdar and Vallabhdas Thacker and any contravention by them would not fastenresponsibility on the respondents. The acquittal of the respondents is, therefore, fullyGjustified. The appeal fails and is dismissed.”15 (1984) 4 SCC 352: The court held that anyone among : the company itself; everyperson in-charge of and responsible to the company for the conduct of the business; orany director, manager, secretary or other officer of the company with whose consent orconnivance or because of whose neglect offence had been committed, could be prosecutedalone.

16 (2000) 1 SCC 1:”13. If the offence was committed by company it can be punishedHonly if the company is prosecuted. But instead of prosecuting the company if payee

in which, interpreting and expounding the difference between the primary/substantial liability and vicarious liability under Section 141 of the NIAct, it has held:

“51. We have already opined that the decision in SheoratanAgarwal runs counter to the ratio laid down in C.V. Parekh whichis by larger Bench and hence, is binding precedent. On theaforesaid ratiocination, the decision in Anil Hada has to be treatedas not laying down the correct law as far as it states that theDirector or any other officer can be prosecuted withoutimpleadment of the company. Needless to emphasise, the matterwould stand on different footing where there is some legalimpediment and the doctrine of lex non cogit ad impossibilia getsattracted.xx xx xx

59. In view of our aforesaid analysis, we arrive at the irresistibleconclusion that for maintaining the prosecution under Section 141of the Act, arraigning of 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 beenstipulated in the provision itself. We say so on the basis of theratio laid down in C.V. Parekh which is three-Judge Benchdecision. Thus, the view expressed in Sheoratan Agarwal doesnot correctly lay down the law and, accordingly, is hereby overruled.The decision in Anil Hada is overruled with the qualifier as statedin para 51. The decision in Modi Distillery has to be treated tobe restricted to its own facts as has been explained by ushereinabove.”

opts to prosecute only the persons falling within the second or third category thepayee can succeed in the case only if he succeeds in showing that the offence wasactually committed by the company. In such prosecution the accused can show thatthe company has not committed the offence, though such company is not made anaccused, and hence the prosecuted accused is not liable to be punished. The provisionsdo not contain condition that prosecution of the company is sine qua non forprosecution of the other persons who fall within the second and the third categoriesmentioned above. No doubt finding that the offence was committed by the companyis sine qua non for convicting those other persons. But if company is not prosecuteddue to any legal snag or otherwise, the other prosecuted persons cannot, on that scorealone, escape from the penal liability created through the legal fiction envisaged inSection 141 of the Act.”

A14. The provisions of Section 141 impose vicarious liability bydeeming fiction which presupposes and requires the commission of theoffence by the company or firm. Therefore, unless the company or firmhas committed the offence as principal accused, the persons mentionedin sub-section (1) or (2) would not be liable and convicted as vicariouslyliable. Section 141 of the NI Act extends vicarious criminal liability toBofficers associated with the company or firm when one of the twinrequirements 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 commitsthe offence as the primary offender. This view has been subsequentlyCfollowed in Sharad Kumar Sanghi v. Sangita Rane,[17]Himanshu v.B. Shivamurthy and Another,[18] and Hindustan Unilever Limited v.State of Madhya Pradesh.[19] The exception carved out in Aneeta Hada17 (2015) 12 SCC 781:”11. In the case at hand as the complainant’s initial statementDwould reflect, the allegations are against the Company, the Company has not beenmade party and, therefore, the allegations are restricted to the Managing Director. Aswe have noted earlier, allegations are vague and in fact, principally the allegations areagainst the Company. There is no specific allegation against the Managing Director.When company has not been arrayed as party, no proceeding can be initiated againstit even where vicarious liability is fastened under certain statutes. It has been so held bya three-Judge Bench in Aneeta Hada v. Godfather Travels and Tours (P) Ltd. in theEcontext of the Negotiable Instruments Act, 1881.”18 (2019) 3 SCC 797:”13. In the absence of the company being arraigned as an accused,a complaint against the appellant was therefore not maintainable. The appellant hadsigned the cheque as Director of the company and for and on its behalf. Moreover, inthe absence of notice of demand being served on the company and without compliancewith the proviso to Section 138, the High Court was in error in holding that thecompany could now be arraigned as an accused.”F19 (2020) 10 SCC 751: “23. Clause (a) of sub-section (1) of Section 17 of the Act makesthe person nominated to be in charge of and responsible to the company for the conductof business and the company shall be guilty of the offences under clause (b) of sub-section (1) of Section 17 of the Act. Therefore, there is no material distinction betweenSection 141 of the NI Act and Section 17 of the Act which makes the company as wellas the nominated person to be held guilty of the offences and/or liable to be proceededand punished accordingly. Clauses (a) and (b) are not in the alternative but conjoint.GTherefore, in the absence of the company, the nominated person cannot be convicted orvice versa. Since the Company was not convicted by the trial court, we find that thefinding of the High Court to revisit the judgment will be unfair to the appellant-nominated person who has been facing trial for more than last 30 years. Therefore, theorder of remand to the trial court to fill up the lacuna is not fair option exercised bythe High Court as the failure of the trial court to convict the Company renders theentire conviction of the nominated person as unsustainable.”H

(supra),[20] which applies when there is legal bar for prosecuting acompany or firm, is not felicitous for the present case. No such plea orassertion is made by the respondent.

15. Given the discussion above, we allow the present appeal andset aside the appellant’s conviction under Section 138 read with Section141 of the NI Act. The impugned judgment of the High Court confirmingthe conviction and order of sentence passed by the Sessions Court, andthe order of conviction passed by the Judicial Magistrate First Class areset aside. Bail bonds, if any, executed by the appellant shall be cancelled.The appellant is acquitted.[21] However, there would be no order as tocosts.

Nidhi Jain(Assisted by : Tamana, LCRA)

Appeal allowed.

20 The exception would be when the company itself has ceased to exist or cannot beprosecuted due to statutory bar.

21 However, as Simaiya Hariramani has preferred no appeal, we express no opinion inhis case.