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 to the Bankfor part payment of loan - Dishonour of cheque due to insufficient funds – Complaint u/s. 138 r/w 141 against appellant and other, being partner of firm – Firm not made an accused – Conviction by trail court and High Court – On appeal, held : s. 141 impose vicarious liability by deeming fiction which presupposes and requires the commission of the offence by the company or firm as a principal accused, to make them liable and convicted as vicariously liable – Appellant did not issue any cheque, which had been dishonoured, in his personal capacity or otherwise as a partner – In the absence of any evidence led by the prosecution to show and establish that the appellant was in charge of and responsible for the conduct of the affairs of the firm, the conviction of the appellant has to be set aside – 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 – Thus, the appellant’s conviction u/s. 138 r/w 141 set aside.
Allowing the appeal, the Court
HELD: 1.1 Sub-section (1) to Section 141 of the Negotiable Instruments Act, 1881 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. The expression ‘every person’ is wide and comprehensive enough to include a director, partner or other officers or persons. At the same time, it follows that a person who does not bear out the requirements of ‘in charge of and responsible to the company for the conduct of its business’ is not vicariously liable under Section 141 of the NI Act. The burden is on the prosecution to show that the person prosecuted was in charge of and responsible to the company for conduct of its business. The proviso, which is in the nature of an exception, states that a person liable under sub- section (1) shall not be punished 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. The onus to satisfy the requirements and take benefit of the proviso is on the accused. Still, it does not displace or extricate the initial onus and burden on the prosecution to first establish the requirements of subsection (1) to Section 141 of the NI Act. The proviso gives immunity to a person who is otherwise vicariously liable under sub-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 that notwithstanding anything contained in sub-section (1), where a company has committed any offence under the Act, and it is proved that such an 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 officers of the company, then such director, manager, secretary or other officers of the company shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Sub-section (2) to Section 141 of the NI Act does not state that the persons enumerated, which can include an officer of the company, can 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 onus under sub-section (2) to Section 141 of the NI Act is on the prosecution and not on the person being prosecuted. [Para 8][624-F-H; 625-A-B]
1.3 It is an admitted case of the respondent Bank that the appellant had not issued any of the three cheques, which had been dishonoured, in his personal capacity or otherwise as a partner. In the absence of any evidence led by the prosecution to show and establish that the appellant was in charge of and responsible for the conduct of the affairs of the firm, the conviction of the appellant has to be set aside. 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. The Partnership Act, 1932 creates civil liability. Further, the guarantor’s liability under the Contract Act, 1872 is a civil liability. The appellant may have civil liability and may also be liable under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. However, vicarious liability in the criminal law in terms of Section 141 of the NI Act cannot be fastened because of the civil liability. Vicarious liability under sub-section (1) to Section 141 of the NI Act can be pinned when the person is 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 can arise because of the director, manager, secretary, or other officer’s personal conduct, functional or transactional role, notwithstanding that the person was not in overall control of the day-to-day business of the company when the offence was committed. Vicarious liability under sub-section (2) is attracted when the offence is committed with the consent, connivance, or is attributable to the neglect on the part of a director, manager, secretary, or other officer of the company. [Para 11][627-B-G]
1.4 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 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. [Para 14][630-A-C]
1.5 The appellant’s conviction u/s. 138/141 of the NI Act is set aside. The impugned judgment of the High Court confirming the conviction and order of sentence passed by the Sessions Court, and the Judicial Magistrate are set aside.[Para 15][631B]
Monaben Ketanbhai Shah and Another v. State of Gujarat and Others (2004) 7 SCC 15 : [2004] 3 Suppl. SCR 411; Aneeta Hada v. Godfather Travels and Tours Private 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. Pharmaceuticals Ltd. v. Neeta Bhalla and Another (2005) 8 SCC 89 : [2005] 3 Suppl. SCR 371; National Small Industries Corporation Limited v. Harmeet Singh Paintal and Another (2010) 3 SCC 330 : [2010] 2 SCR 805;
Girdhari Lal Gupta v. D. H. Mehta and Another (1971)
3 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 India through Deputy Chief Labour Commissioner (C) and Another (2021) SCC OnLine SC 1012; State of Madras v. C.V. Parekh and Another (1970) 3 SCC 491;
Sheoratan Agarwal and Another v. State of Madhya Pradesh (1984) 4 SCC 352 : [1985] 1 SCR 719; Anil Hada v. Indian Acrylic Ltd. (2000) 1 SCC 1 : [1999] 5 Suppl. SCR 6; Sharad Kumar Sanghi v. Sangita Rane (2015) 12 SCC 781 : [2015] 2 SCR 145; Himanshu v. B. Shivamurthy and Another (2019) 3 SCC 797 : [2019]
1 SCR 991; Hindustan Unilever Limited v. State of Madhya Pradesh (2020) 10 SCC 751 - referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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