Smt. Vunna Visali v. State Of A.P., Repted., By Public Prosecutor And Two Ors.

1. Whether a partner, who is not responsible for the day-to-day business of a partnership Firm, can be prosecuted for the offences alleged to have been committed by the Firm?

2. This is the main question that arises for consideration in this petition filed under Section 482 Cr.P.C.

3. Briefly stated, the facts that gave rise to this question are:

4. The petitioner herein is the 2nd accused in Calendar Case No.138 of 1997 pending on the file of the Court of the Additional Judicial I Class Magistrate, Srikakulam, and is facing trial along with another accused (Andhavarapu Bhaskara Rao-A.1) for the offences punishable under sections 406, 420 and 477-a ipc. Those proceedings were initiated at the instance of the 2nd respondent herein, who has filed a private complaint before the said Court stating that he (the complainant), the petitioner herein (A.2) and A.1 were partners of the partnership firm - Siri Marketings - which was constituted for carrying on the business in purchase and sales of lubricating oils, building materials etc. The said partnership firm commenced its business from 1-9-1994. As per the terms of the partnership deed each one of the partner had to invest Rs. 94,000/- and each partner is entitled to 1/3rd of the profit and losses of the firm. The Bank Account on behalf of the firm had to be opened and operated jointly by the complainant and A.1. A.1 and the complainant are entitled to draw salary of Rs. 500/- to Rs. 2,000/- per month. It is further stated that the complainant (2nd respondent herein) wanted to retire from the firm and accordingly retired on 31-3-1995. Thereafter, on 1-4-1995 the remaining partners reconstituted the firm by inducting two more partneRs. But the complainant did not receive anything from the firm towards his share of profits, and the accounts of the firm were not settled in spite of his approaching the accused several times. Having waited for some reasonable time, the complainant contacted the petitioner herein (A.2), her husband and father-in-law, many a time, personally and through elders, and requested settlement of accounts, but there was no response. Thus, both the accused colluded together and deceived the complainant with a dishonest intention of getting wrongful gain to them and loss to the complainant.

5. After receiving the complaint, the learned Magistrate referred the same to the Police for investigation under Section 156(3) Cr.P.C. Thereafter, the Police investigated and laid a charge sheet against the petitioner herein and A.1 for the offences punishable under sections 406, 420 and 477-a ipc. It is stated in paras 4 to 6 of the charge sheet thus:

"4. Though the Bank account is jointly opened in the name of A.1 and PW.1, A.1 used to operate the same.

7. Appearing for the petitioner (A.2), the learned Counsel Sri K.Saibabu contended that: (a) the petitioner (A.2), being a sleeping partner, is not responsible for the day to day business of the firm and cannot be made vicariously liable for the offences alleged to have been committed by the Partnership Firm under Sections 406, 420 and 477-A IPC; and (b) the charge sheet, the complaint and the 161 Cr.P.C., statements of the witnesses examined during the course of investigation do not indicate the essential ingredients of the offences punishable under sections 406,420 and 477-a ipc against the petitioner; and that, therefore, the criminal proceedings are liable to be quashed.

8. The learned Public Prosecutor as well as the learned counsel for the 2nd respondent-Complainant - Sri D.Ramalinga Swamy - strongly disputed the aforesaid contentions.

9. The 2nd respondent-Complainant, A.1 and the petitioner herein constituted a partnership firm - Siri Marketings - to carryon the business in purchase and sales of lubricating oils, building materials etc. They have also executed a partnership deed on 12-8-1994. According to which, each of the partners have to contribute a sum of Rs. 94,000/- and shall get 1/3rd share each in the profit and loss of the firm. The partnership deed specifically states that A.1 shall be the Managing Partner. It also states that A.1 and the complainant will be working partners, who will be entitled to a salary of Rs. 500/- to Rs. 2,000/- per month. These facts were also admitted in the complaint filed by the complaint and the charge sheet laid by the Police, which are referred to hereinabove. Thus, admittedly, the petitioner has nothing to do with the day-to-day business of the firm or operation of the bank account of the firm, which was jointly operated by A.1 and the complainant. The petitioner is not even a working partner and she is not entitled to draw any salary. It is, therefore, clear that she is only a sleeping partner.

10. The question, therefore, arises for consideration is:

11. Whether a sleeping partner of a firm is criminally liable for the acts of the Partnership Firm?

12. This question was considered by the Supreme Court in SHAM SUNDER V. STATE OF HARYANA, . That was a case where the sleeping partners of the Partnership Firm - M/s. Panna Lal Prem Nath Rice Mills at Shahpur - were prosecuted and convicted by the trial Court for the offences said to have been committed by the firm in contravention of the Haryana Rice Procurement (Levy) Order, 1979 and punishable under Section 7 of the Essential Commodities Act. The High Court of Punjab & Haryana confirmed that conviction. The appellants then approached the Hon'ble Supreme Court by of an Appeal. Considering the scope of Section 10 of the E.C. Act, which made every Director of a Company or a Partner of a Partnership Firm, who is responsible to the Company or the Partnership Firm for the conduct of the business of the Company/Firm, at the relevant time, also liable for the offences under that Act, the Supreme Court held thus:

"7. ... ... It is true that under the Indian Partnership Act, 1932, a 'firm' or a 'partnership' is not a legal entity but is merely an association of persons agreed to carry on business. It is only a collective name for individuals, carrying on business in partnership. The essential characteristic of a firm is that each partner is a representative of other partneRs. Each of the partners is an agent as well as a principal. He is an agent in so far as he can bind the other partners by his acts within the scope of the partnership agreement. He is a principal to the extent that he is bound by acts of other partneRs. In fact every partner is liable for an act of the firm. Section 2(a) of the Partnership Act defines an 'act of a firm' to mean any act or omission by all the partners, or by any partner or agent of the firm which gives rise to a right enforceable by or against the firm.

8. But we are concerned with a criminal liability under penal provision and not a civil liability. The penal provision must be strictly construed in the first place. Secondly, there is no vicarious liability in criminal law unless the statute takes that also within its fold. Section 10 does not provide for such liability. It does not make all the partners liable for the offence whether they do business or not.

9. It is, therefore, necessary to add an emphatic note of caution in this regard. More often it is common that some of the partners of a firm may not even be knowing of what is going on day to day in the firm. There may be partners better known as sleeping partners who are not required to take part in the business of the firm. There may be ladies and minors who were admitted for the benefit of partnership. They may not know anything about the business of the firm. It would be a travesty of justice to prosecute all partners and ask them to prove under the proviso to sub-section (1) that the offence was committed without their knowledge. It is significant to note that the obligation for the accused to prove under the proviso that the offence took place without his knowledge or that he exercised all due diligence to prevent such offence arises only when the prosecution establishes that the requisite condition mentioned in sub-section (1) is established. The requisite condition is that the partner was responsible for carrying on the business and was during the relevant time in charge of the business. In the absence of any such proof, no partner could be convicted. We, therefore, reject the contention urged by counsel for the State".

13. Following the aforesaid decision of the Supreme Court, a learned singe Judge of this Court (Justice A.Hanumanthu) quashed the criminal proceedings initiated against a sleeping partner for the offence punishable under Sections 120-B, 420, 406 and 468 IPC in G.PRAMEELA (Smt) v. Smt. AVULA HYMAVATHI, 1997(2) ALT(Crl) 210) holding thus:

"... ... It is true that under the Indian Partnership Act, 'firm' or 'partnership' is not a legal entity, but merely an association of persons agreed to carry on business. It is only a collective name for individuals carrying on business in partnership. The essential characteristic of a firm is, that each partner is a representative of other partner. Each of the partner is an agent as well as principal. He is an agent insofar as he can bind the other partners by his acts within the scope of the partnership agreement. He is principal to the extent that he is bound by the acts of other partneRs. In fact, every partner is liable for an 'act of the firm'. 'Act of a firm' has been defined to mean 'any act or omission by all the partners or by any partner or agent of the firm which gives rise to a right enforceable by or against the firm'. This is the civil liability of the firm and its partneRs. But, in the instant case, we are concerned with criminal liability under penal provisions and not civil liability of the partneRs. There is no vicarious liability in criminal law unless the statute takes that also within its fold. There is nothing in the partnership Act making all the partners of a firm liable for the criminal offences whether they do business or not. At best, the partners who are incharge of the business of the firm when the alleged offence was committed, may be liable for that offence and not the other partners who are no way connected with the business of the firm"

14. That decision applies on all fours to the facts of the case on hand.

15. As already noted, the petitioner herein is a mere sleeping partner. Even according to the complaint and the charge sheet, it is the defacto-complainant (2nd respondent herein) and A.1, who were managing the affairs of the firm as working partners and also receiving salary. At no point of time the petitioner herein was entrusted with the management of the firm. LW.2, who is no other than the father of the defacto-complainant, categorically stated that the petitioner-A.2 was a sleeping partner of the firm - Siri Marketings. Likewise, LW.3, who worked in the said firm, also categorically stated that the petitioner-A.2 was a sleeping partner. LW.5, who was a friend of the defacto-complainant, also stated that the day-to-day business of the partnership firm was looked after by A.1. As already noted, even the complainant himself stated in the complaint that it is A.1, who was incharge of the business of the firm and operating the Bank account. The petitioner remained as a sleeping partner even in the reconstituted firm after the retirement of the defacto-complainant. This is evident from the partnership deed that was executed on 1-4-1995. Thus, there is no whisper either in the complaint or in the 161 Cr.P.C. statements recorded during the course of investigation or in the charge sheet about the involvement of the petitioner (A.2) in day-to-day business of the firm. Therefore, the petitioner cannot be prosecuted for the alleged offences committed by the Firm under sections 406, 420 and 477-a ipc.

16. Now I would like to consider the second contention advanced on behalf of the petitioner, even though it may not be necessary in view of my aforesaid conclusions.

17. The essential ingredient of the offence "criminal breach of trust" under Section 405 IPC is that the accused being entrusted with or having domain over the property, stated to have been converted for his own use or misappropriated.

18. Considering this aspect in relation to a partner of a partnership firm, the Supreme Court in VELJI RAGHAVJI V. STATE OF MAHARASHTRA, 1965 (2) Crl.L.J. 431) held thus:

"Upon a plain reading of S.405, IPC, it is obvious that before a person can be said to have committed criminal breach of trust it must be established that he was either entrusted with or entrusted with dominion over property which he is said to have converted to his own use or disposed of in violation of any direction of law, etc. Every partner has dominion over property by reason of the fact that he is a partner. This is a kind of dominion which every owner of property has over his property. But it is not dominion of this kind which satisfies the requirement of S.405. In order to establish 'entrustment of dominion' over property to an accused person the mere existence of that person's dominion over property is not enough. It must be further shown that his dominion was the result of entrustment. Therefore, as rightly pointed out by Harris, C.J., the prosecution must establish that dominion over the assets or a particular asset of the partnership was, by a special agreement between the parties, entrusted to the accused person. If in the absence of such a special agreement a partner receives money belonging to the partnership he cannot be said to have received it in a fiduciary capacity or in other words cannot be held to have been 'entrusted' with dominion over partnership properties"

19. The aforesaid decision of the Supreme Court was followed by the Madras High Court in ALAGIRI V. STATE, 1996 Crl.L.J.2978).

20. As already noted, in the present case there is no whisper either in the complaint or in the charge sheet regarding the entrustment of the property or entrustment of domain over the property of the partnership firm to the petitioner-A.2 by a special agreement. Therefore, she cannot be prosecuted for the offence under Section 406 IPC.

21. Likewise, she cannot be prosecuted for the offence under Section 420 IPC.

22. "Cheating" is defined under Section 415 IPC and is as under:

"Cheating: Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he was not so deceived, and which act of omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to 'cheat"

23. The Apex Court in RAM JAS V. STATE OF U.P., held that the ingredients required to constitute the offence of cheating are:

"(i) there should be fraudulent or dishonest inducement of a person by deceiving him;

(ii) (a) the person so deceived should be induced to deliver any property to any person, or to consent that any person shall retain any property; or

(b) the person so deceived should be intentionally induced to do or omit to do anything which he would not do or omit if he were not so deceived; and

(iii) in cases covered by (ii)(b), the act or omission should be one which causes or is likely to cause damage or harm to the person induced in body, mind, reputation or property".

24. The aforesaid decision was reaffirmed by the Apex Court in MEDCHL CHEMICALS & PHARMA (P) LTD. V. BIOLOGICAL E. LTD., .

25. It may be noted here that while Section 415 deals with cheating, Section 420 IPC deals with cheating and dishonestly inducing delivery of property.

26. As already noted, the aforesaid essential ingredients of cheating are conspicuously missing in the complaint or in the charge sheet or in the accompanying material. Therefore, the petitioner cannot be prosecuted for the offence under Section 420 IPC.

27. So far as the offence under Section 477-A IPC, i.e., falsification of accounts, is concerned, as already noted, admittedly, the petitioner was never incharge of the accounts of the firm and as such falsification of accounts by the petitioner does not arise.

28. From the aforegoing, it is clear that the prosecution has failed to make out a prima facie case against the petitioner for any of the offences punishable under sections 406, 420 and 477-a ipc.

29. The learned counsel for the 2nd respondent-complainant, Sri D.Ramalinga Swamy, however, relying upon the decision of the Supreme Court in STATE OF HIMACHAL PRADESH V. PIRTHI CHAND, , submits that only in rarest of rare cases, the prosecution can be scuttled at its inception by quashing the proceedings under Section 482 Cr.P.C. and this is not one such a rare case and, therefore, the proceedings should not be quashed.

30. While I have no hesitation to agree with the first part of the aforesaid submission, I am unable to agree with the second part of the submission. It is now well settled that if the allegations in the charge sheet/complaint, taken on their face value, do not constitute the offences alleged against the accused, the proceedings have to be quashed to prevent abuse the process of the Court. See the decisions of the Supreme Court in STATE OF HARYANA V. BHAJANLAL, and HRIDAYA RANJAN PRASAD VERMA V. STATE OF BIHAR, (2000) 4 SCC 168).

31. Even in the decision relied upon by the learned counsel for the 2nd respondent in PIRTHI CHAND (7 supra) the Supreme Court held (in para 12 of the Report) thus:

"The Court has to prima facie consider from the averments in the charge-sheet and the statements of witnesses on the record in support thereof whether Court could take cognizance of the offence, on that evidence and proceed further with the trial. If it reaches a conclusion that no cognisable offence is made out no further act could be done except to quash the charge-sheet"

32. For the aforementioned reasons, the Criminal Petition succeeds and it is accordingly allowed. The Criminal Proceedings in Calendar Case No.138 of 1997, pending on the file of the Additional Judicial I Class Magistrate, Srikakulam, are quashed insofar as they relate to the petitioner-A.2 is concerned.