2026 (1) TMI 1025 - HC - Benami Property

Benami transactions and vicarious liability in partnership finances: managing partner implicated while dormant partner discharged for lack of averments

Benami transactions and vicarious liability were examined where substantial unexplained deposits raised a prima facie case against the firm and its ... Benami transaction - huge deposits - Vicarious liability of officers of the firm/company if the offence is committed by the firm/company - prima facie case to proceed - discharge at the stage of framing of charge - requisite averments in the complaint to invoke the provisions of Section 62 of the PBPT Act - Criminal Revision in High Court - HELD THAT:- As stated, it is the case of the respondent that a sum, credited to the account of the first accused firm post-demonetisation. It is seen from the counter and the other records that the income of the first accused firm was less in the previous Academic Years. That apart the respondent has alleged that the petitioners have filed bogus bills and sales bills to falsely claim the sale of the products that they were dealing with. Thus, this Court is of the view that the petitioner's defence that they had enough income and the deposits made by them were genuine cannot be adjudicated at this stage. In fact, under Section 2(9)(D) of the PBPT Act, 'Benami Transactions' include the transaction in respect of the property where the person providing the consideration is not traceable or is fictitious. Therefore, the fact that the beneficial owner has not been identified would not be a ground for discharge. In this case, the first accused is the partnership firm and the second accused is its Managing Partner without whose consent the said cash deposits would not have been made. Even according to the third accused, the second accused was taking care of the affairs of the firm. He had also signed the Balance Sheet and other relevant documents, which indicates his knowledge and consent prima facie. Therefore, this Court is of the view that the order of the learned Magistrate in refusing to discharge the second accused also cannot be faulted. As regards the third accused, who happens to be the wife of the second accused, it is the case of the respondent that she was a partner and hence, liable. The petitioner/third accused though not issued a separate show cause notice had replied stating that she was only a dormant partner and that the affairs of the partnership firm were taken care of by her husband/second accused. In the Sanction Order relied upon by the respondent dated 21.10.2019, a reference is made to the reply sent by the petitioner. However, there is no reference to the exact role played by the petitioner and as to how she was in-charge and responsible to the firm for the conduct of its business. In the impugned complaint, the respondent have not made the requisite averments to hold her vicariously liable for the offences committed by the firm. The petitioner cannot be equated with her husband, who was the Managing Partner. Therefore, the respondent should have specifically averred that the petitioner was in-charge and responsible to the firm for the conduct of its business. Thus, it would be clear that although a firm is not a juristic person, a partner could not be liable unless one of the twin requirements to make him/her vicariously liable is satisfied. In the PBPT Act, the twin requirements are stipulated in Section 62. Thus, in the light of the specific stand taken by the petitioner/third accused in the reply to the show cause notice and in the absence of any material to establish the role played by the petitioner/third accused, this Court is of the view that the petitioner/third accused cannot be made vicariously liable, especially since even the necessary averment to invoke vicarious liability is absent in the complaint. Therefore, this Court is inclined to set aside the impugned order insofar as the petitioner/third accused is concerned. However, it is made clear that if the respondent is able to adduce any evidence to prove the role played by the petitioner/third accused to make her vicariously liable, then the respondent is at liberty to invoke Section 319 of the Cr.P.C., corresponding to 358 BNSS. Issues: (i) Whether the trial court erred in refusing to discharge the first accused firm and the second accused (Managing Partner) at the stage of framing charge; (ii) Whether the trial court erred in refusing to discharge the third accused (claimed dormant partner) for lack of requisite averments to fasten vicarious liability under the PBPT Act.Issue (i): Whether the first accused firm and the second accused (Managing Partner) should have been discharged.Analysis: The evidence and averments show large post-demonetisation cash deposits and allegations of bogus bills; the second accused is admitted to be the Managing Partner, signed balance sheets and other documents, and is prima facie shown to have taken part in the affairs of the firm; benami transaction provisions include transactions where the person providing consideration is not traceable and absence of identified beneficial owner is not a ground for discharge; the complaint contains material from which in-charge and responsibility of the Managing Partner can be inferred at the prima facie stage.Conclusion: The refusal to discharge the first accused firm and the second accused is upheld; discharge is not warranted.Issue (ii): Whether the third accused, who claimed to be a dormant partner, should have been discharged for want of specific averments to fasten vicarious liability.Analysis: Vicarious criminal liability requires specific averments and material to show the person was in-charge of and responsible for the conduct of the business; the complaint lacks requisite averments concerning the third accused and there is no material establishing her role beyond partnership status; authorities require pleading and proof of the twin requirements for vicarious liability and do not permit inference solely from partnership.Conclusion: The impugned order is set aside insofar as the third accused is concerned and the third accused is discharged at this stage; however, respondent may invoke Section 319 CrPC if evidence is subsequently adduced to establish her role.Final Conclusion: The revision filed by the third accused is allowed and the revision filed by the first and second accused is dismissed, resulting in a partial allowance of the petitions with liberty to the respondent to proceed under Section 319 CrPC if further material is found.Ratio Decidendi: Vicarious liability under the PBPT Act can be imposed only where the complaint contains specific averments and material showing the accused was in-charge of and responsible for the conduct of the business; absent such averments and material, an accused partner claiming dormancy must be discharged at the prima facie stage.