Power to quash criminal proceedings in an offence under Section 141 N I Act must be exercised carefully

Supreme Court in the case namely Rallis India Ltd. vs. Poduru Vidya Bhusan and Ors., decided on 13.04.2011 (MANU/SC/0422/2011), dealt with the issue of exercise of power by High Court under Section 482 of the Code of Criminal Procedure while discharging persons arrayed as accused in the capacity of directors or partners in the company and firm respectively.

In the instant matter the accused person were discharged of the offences contained under Sections 138 and 141 of the Negotiable Instruments Act, 1881 (Act). A complaint was filed under Sections 138 and 141 of the Act alleging that cheques in question as issued by the accused persons, when presented were returned as unpaid with the remarks, ‘Payment stopped by Drawer’. 

It was plea of complainant that the Accused No. 1 was a partnership firm and other Accused person were the partners and one amongst them was the signatory of impugned cheques and all partners were looking after day to day affairs of the accused firm. Accordingly, it was alleged that the liability as raised by them was joint and several. Three accused persons denied their vicarious liability for the offences on the ground that they had retired from the partnership firm much prior to the issuance of the cheques in question. It was contended by the Appellant that the said denial cannot be accepted as it would be a matter of evidence to be considered by the Trial Court. Even the question whether or not they would be responsible for the impugned liabilities would be required to be answered only after the parties go to trial as it is disputed question as to when they had actually retired from the partnership firm.
It was held that the burden of proof that at the relevant point of time they were not the partners, lies specifically on them (the relevant accused person). This onus is required to be discharged by them by leading evidence and unless it is so proved, in accordance with law they cannot be discharged of their liability. High Court committed an error in discharging them. 

The primary responsibility of the complainant is to make specific averments in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no legal requirement for the complainant to show that the accused partner of the firm was aware about each and every transaction. On the other hand, proviso to Section 141 of the Act clearly lays down that if the accused is able to prove to the satisfaction of the Court that the offence was committed without his knowledge or he had exercised due diligence to prevent the commission of such offence, he will not be liable of punishment. The final judgment and order would depend on the evidence adduced. Criminal liability is attracted only on those, who at the time of commission of the offence, were in charge of and were responsible for the conduct of the business of the firm. But vicarious criminal liability can be inferred against the partners of a firm when it is specifically averred in the complaint about the status of the partners “qua” the firm. This would make them liable to face the prosecution but it does not lead to automatic conviction. Hence, they are not adversely prejudiced – if they are eventually found to be not guilty, as a necessary consequence thereof would be acquitted.

The High Court could not have discharged the Respondents of the said liability at the threshold. Unless parties are given opportunity to lead evidence, it is not possible to come to definite conclusion as to what was the date when the earlier partnership was dissolved and since what date the Respondents ceased to be the partners of the firm.
It was observed that the world of commercial transactions contains numerous unique intricacies, many of which are yet to be statutorily regulated. More particularly, the principle laid down in Section 141 of the Act (which is pari material with identical sections in other Acts like the Food Safety and Standards Act, the erstwhile Prevention of Food Adulteration Act etc. etc.) is susceptible to abuse by unscrupulous companies to the detriment of unsuspecting third parties. In the present case, there were several disputed facts involved – for instance, the date when the partnership came into being, who were the initial partners, if and when the Respondents had actually retired from the partnership firm etc.

It was held that the ratio of the SMS Pharmaceuticals case can be followed only, after the factum that accused were the Directors or Partners of a Company or Firm respectively at the relevant point of time, stands fully established. However, in cases like the present, where there are allegations and counter-allegations between the parties regarding the very composition of the firm, the above rule of `specific averment’ must be broadly construed.