2025 (7) TMI 696 - HC - Indian Laws

Partnership firm's acquittal under section 138 NI Act bars vicarious liability of partners under section 141

Calcutta HC dismissed appeal against acquittal in dishonour of cheque case. Court held that vicarious liability of partners under section 141 NI Act ... Dishonour of Cheque - conviction of accused - Vicarious liability of the partner - signatory of the impugned cheque, has not been able to rebut the presumption in favour of the complainant - HELD THAT:- In Aneeta Hada Vs. M/S Godfather Travels and Tours Pvt. Ltd. [2012 (5) TMI 83 - SUPREME COURT] it has been clearly held that company / partnership firm is a juristic person but it has its own respectability and when the company can be prosecuted then only the persons mentioned in other categories could be vicariously liable for the offence subject to the averments in the petition and proof thereof. To hold a person guilty of offence under section 138 of the N.I. Act by virtue of section 141 of the N.I. Act, it must be required to be established, the commission of the offence by the partnership firm and until and unless it is established that the said partnership firm committed offence under section 138 of the N.I. Act, its partners cannot be convicted holding that they are vicariously liable. Commission of offence by the said juristic person namely the partnership firm is pre requisite to convict the partners referred under section 141 of the N.I. Act or to hold such partner guilty of the said offence. Section 141 makes it clear that a person referred to in section 141 of N.I. Act can be prosecuted and convicted only for an offence committed by another person i.e. the partnership firm. In the present case complainant specifically averred in the complaint that the accused persons including the partnership firm in discharge of their legally enforceable debt had issued the cheque and nowhere in the complaint he has stated that accused no.2 issued the cheque in his personal capacity. If the substance of the complaint would have been that the accused no.2 issued the cheque in his personal capacity, complainant would not have arraigned the partnership firm as accused no. 1. Accordingly accused no.2/appellant herein, even if issued the cheque, he has issued the same as partner of accused no.1/partnership firm. When the partnership firm/accused no.1 is found not guilty of the offence, the alleged partner, of the firm namely accused no.2/Respondent herein cannot be held vicariously liable for the offence committed by the partnership firm/accused no.1 - the liability of persons referred to section 141 of N.I. Act is co-extensive with that of the partnership firm and when in a proceeding under section 138 of the N.I. Act, it is found that the partnership firm has not committed the offence and it is acquitted and more so when it has reached its finality, the partners are not liable to be convicted for the offence for which the company has been acquitted. This is also because the vicarious liability of partners under section 141 of N.I. Act is contingent upon the partnership firm’s conviction. If the firm is not found guilty, there is no principal offender for the partners to be vicariously liable for. If the company is acquitted, it means the court has determined that the company did not commit the offence. A co-ordinate Bench of Kerala High Court in Afsal Hussain Vs. K.S. Muhammed Ismail & another [2023 (11) TMI 1383 - KERALA HIGH COURT], in a similar fact and circumstances held when it is found that the company has not committed the offence, and it is acquitted, it’s directors are not liable to be convicted, for the offence for which the company has been acquitted, specially when the acquittal order passed in favour of accused/company has attained it’s finality. Furthermore this is an appeal against acquittal. It is well settled that a decision of acquittal is not meant to be reversed on a mere difference of opinion but what is required is an illegality or perversity in the order of the court below. Since the firm is not convicted rather acquitted, its partner cannot be held vicariously liable and thereby cannot be convicted for committing offence under section 138 of the N.I Act. In fact the presumption of innocence of the accused being primary factor, in absence of exceptional compelling circumstances and perversity in the ultimate finding of the judgment impugned, it is not open to the High Court to interfere with the judgment of the court below in a routine manner. There is nothing to interfere with the judgment impugned - petition allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:(a) Whether the accused partner of a partnership firm can be held vicariously liable under sections 138 and 141 of the Negotiable Instruments Act (N.I. Act) when the partnership firm itself has been acquitted of the offence of dishonour of cheque;(b) Whether the issuance of a cheque by a partner on behalf of the partnership firm establishes personal liability of the partner under the N.I. Act;(c) The legal effect and scope of section 141 of the N.I. Act, particularly the conditions under which partners or directors can be held liable for offences committed by the partnership firm or company;(d) The applicability and binding nature of the precedent set by the Supreme Court in Aneeta Hada v. Godfather Travels and Tours Pvt. Ltd., overruling earlier inconsistent judgments;(e) The scope of appellate interference in an appeal against acquittal, especially in the absence of illegality or perversity in the trial court's judgment.2. ISSUE-WISE DETAILED ANALYSISIssue (a) and (c): Vicarious liability of partners under sections 138 and 141 of the N.I. Act when the partnership firm is acquittedThe legal framework revolves around sections 138 and 141 of the N.I. Act. Section 138 deals with the offence of dishonour of cheque for insufficiency of funds or other reasons, while section 141 addresses offences by companies and extends vicarious liability to persons in charge of the company, including partners in a firm (as per the Explanation in section 141(2)(a) and (b)).The Court referred extensively to the Supreme Court judgment in Aneeta Hada v. Godfather Travels and Tours Pvt. Ltd. (AIR 2012 SC 2795), which clarified that the commission of offence by the company (or partnership firm) is a necessary precondition to attract vicarious liability of partners or directors. The Court emphasized the doctrine of strict construction, holding that the wording 'as well as the company' in section 141 makes it clear that partners/directors can be held liable only if the company or firm itself is found guilty of the offence.The Court noted that the partnership firm is a juristic person with its own legal identity and reputation, and conviction of partners under section 141 is contingent upon the firm's conviction. If the firm is acquitted, the partners cannot be held vicariously liable for the offence under section 138.In the instant case, the trial court acquitted the partnership firm (accused no.1) and one partner (accused no.3) but convicted accused no.2 (respondent) as he was signatory to the cheque and the presumption under section 138(b) was not rebutted. However, the appellate court acquitted accused no.2 on the ground that the complainant failed to prove that the cheque was issued in discharge of a legally enforceable debt of accused no.2 personally, and that the complaint related to the liability of the partnership firm only.The Court found the appellate court's reasoning consistent with the legal principle that vicarious liability under section 141 is dependent on the firm's commission of the offence. Since the firm was acquitted and no appeal was filed against that acquittal, the acquittal of accused no.2 was justified.Issue (b): Whether issuance of cheque by partner establishes personal liabilityThe complaint and evidence specifically averred that the cheque was issued by accused no.2 on behalf of the partnership firm, not in his personal capacity. The complainant did not allege or prove any personal liability of accused no.2 towards the amount. The Court held that mere signature on the cheque by a partner on behalf of the firm does not render him personally liable under section 138 unless the firm itself is found liable or the cheque is issued in his personal capacity.The Court further observed that the complainant's failure to contest the acquittal of the partnership firm or to establish personal liability of accused no.2 was fatal to the prosecution against accused no.2.Issue (d): Applicability of precedent and overruling of earlier inconsistent lawThe Court relied on the three-Judge Bench decision in Aneeta Hada, which overruled the earlier Anil Hada judgment (AIR 2000 SC 145). The earlier law had not correctly laid down the principle of vicarious liability of directors/partners under section 141. The current binding precedent requires the principal offender (the company or firm) to be convicted before partners or directors can be held liable.The Court also cited a coordinate bench decision from Kerala High Court in Afsal Hussain v. K.S. Muhammed Ismail & another (2023 Live Law (Ker) 693), which held similarly that acquittal of the company precludes conviction of directors or partners for the same offence under section 141.Issue (e): Scope of appellate interference in appeal against acquittalThe Court reiterated the settled principle that an appeal against acquittal is not to be allowed to succeed on mere difference of opinion. Interference is warranted only if there is illegality, perversity, or manifest error in the judgment of the court below. The Court found no such grounds in the present case. The appellate court's acquittal of accused no.2 was neither illegal nor perverse, but rather based on proper application of law and facts.3. SIGNIFICANT HOLDINGS'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.''Section 141 makes it clear that a person referred to in section 141 of N.I. Act can be prosecuted and convicted only for an offence committed by another person i.e. the partnership firm.''If the firm is not found guilty, there is no principal offender for the partners to be vicariously liable for. If the company is acquitted, it means the court has determined that the company did not commit the offence.''A decision of acquittal is not meant to be reversed on a mere difference of opinion but what is required is an illegality or perversity in the order of the court below.'The Court's final determination was to dismiss the appeal against acquittal of accused no.2, holding that the acquittal of the partnership firm was final and binding, and thus no vicarious liability could be fastened on the partner accused no.2 under section 141 of the N.I. Act. The appeal was dismissed accordingly.