Case BriefsSupreme Court

Supreme Court: Explaining the law on vicarious liability under the Negotiable Instruments Act, 1881, the bench of Ajay Rastogi and Sanjiv Khanna*, JJ has held that while Section 141 of the NI Act 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, such vicarious liability arises only when the company or firm commits the offence as the primary offender.

The Court explained that the provisions of Section 141 NI Act 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.

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.

It was further observed that the Partnership Act, 1932 creates civil liability. Further, the guarantor’s liability under the Contract Act, 1872 is a civil liability. The Partner 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.”

In the case at hand, even the Bank of Baroda had admitted that the appellant had not issued any of the three cheques, which had been dishonoured, in his personal capacity or otherwise as a partner. Hence, 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 had 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.”

[Dilip Hariramani v. Bank of Baroda, 2022 SCC OnLine SC 579, decided on 09.05.2022]


*Judgment by: Justice Sanjiv Khanna

Bombay High Court
Case BriefsHigh Courts

Bombay High Court: Expressing that, a firm is not a legal entity, N.J. Jamadar, J., held that a partnership firm is only a collective or compendious name for all the partners.

The present matter was filed to recover the amount which the plaintiffs claimed to have invested in defendant 1 – firm, along with the interest at the rate of 24% p.a. on the basis of the credit notes.

The plaintiffs asserted that defendant 1 was a registered partnership firm and defendants 2 to 4 were its partner and in charge of day-to-day affairs of defendant 1 -firm and otherwise responsible for the conduct of the affairs and business of defendant 1—firm.

Plaintiffs’ case was that upon the representation of defendants 2 to 4 that the plaintiffs would get a handsome return on the investment made with the defendants, the plaintiffs had invested a sum of Rs 1 crore, over a period of time. The said amount was to be repaid on demand along with interest.

Further, the defendant committed default in repayment, hence the suit was filed.

Analysis and Decision

Defendant 1—firm has 8 partners and the names of the partners are reflected in the record maintained by the Registrar of Firms. Hence, it was incumbent upon the plaintiffs to implead all the partners of defendant 1 – firm.

The Bench stated that, there is no qualm over the claim of the plaintiffs that defendant 1 is a registered partnership firm and defendants 2 to 4 are its partners.

Section 25 of the Partnership Act, 1932, provides that every partner is liable, jointly with all the other partners and also severally for all acts of the firm done while he is a partner. 

High Court stated that, a partnership firm does not have any existence apart from its partners. Therefore, a decree in favour of or against the firm in the name of the firm has the same effect like a decree in favour of or against the partners.

Hence, when a firm incurs a liability, it can be assumed that all the partners have incurred that liability and so the partners remain liable jointly and severally for all the acts of the firm.

In view of the above, Court concluded by stating that the plaintiffs are not enjoined to implead all the partners of the firm.

Impleadment of the rest of the partners is not necessary. [Aziz Amirali Ghensani v. Ibrahim Currim & Sons, Interim Application (L) No. 1897 of 2022, decided on 8-4-2022]


Advocates before the Court:

Mr. Rashmin Knandekar, a/w Ms. Karishni Khanna, i/b Amit Tungare, Ms. Jill Rodricks, Mr. Vineet Jain and Mr. Deep Dighe,for the Plaintiffs.

Mr. Siddha Pamesha, a/w Declan Fernandez, i/b Purazar Fouzdar, for Defendant no.4/Applicant in IA.

Mr. Jamsheed Master, i/b Natasha Bhot, for Defendant no.3. Mr. Zain Mookhi, a/w Ms. Janhavi Doshi, i/b Manir  Srivastava Associates, for Defendant no.2.

Case BriefsSupreme Court

Supreme Court: In a loan default case, the Division Bench of L. Nageswara Rao* and B.R. Gavai, JJ., rejected pleas of Rahul Modi of Adarsh Group and Rahul Kothari of Rotomac Global for default bail on the ground that the Trial Court failed to take cognizance within stipulated 60/90 days time under CrPC. The Bench held that the provision is not for the trial courts and filing of the charge-sheet within the stipulated period is sufficient compliance under S. 167 of CrPC.

Background

The Serious Fraud Investigation Office-appellant had assailed the order of the Punjab and Haryana High Court granting bail to Respondents 1 and 2. An investigation was directed to be conducted into the affairs of Adarsh Group of Companies and LLPs by the Central Government in exercise of the powers conferred under Section 212(1)(c) of the Companies Act, 2013 and subsections (2) and (3)(c)(i) of Section 43 of the Limited Liability Partnership Act, 2008 which led to the arrest of respondents 1 and 2.

Respondents 1 and 2 were remanded to 14 days’ judicial custody on 05-04-2019 which was extended to 16-05-2019 and further till 30-05-2019. Noticeably, the Sessions Judge had dismissed the respondents’ applications for statutory bail under Section 167(2) of the CrPC on the ground that the complaint under Section 439(2) of the Companies Act, 2013 was filed on 18.05.2019, i.e., before the expiry of the 60-day period prescribed in proviso (a) to Section 167(2) of the CrPC. However, the High Court considered the regular bail applications of the respondents and directed their release on the ground that they were entitled to statutory bail. The sole reason given for grant of bail by the High Court was that the Trial Court had not taken cognizance of the complaint before the expiry of the 60-day period, which entitled the respondents to statutory bail, as a matter of indefeasible right.

Conflict Involved

One Rahul Kothari had filed application for intervention for as his application for statutory bail was rejected by the Trial Court and upheld by the High Court. It was submitted by the intervener that his case (SLP (Cr) Diary No. 12089 of 2021) raised the same issue, i.e., the right of an accused to claim statutory bail in case cognizance is not taken before the expiry of the prescribed period of 60 or 90 days.

Claiming that there were conflict of opinion regarding the interpretation of Section 167(2), CrPC as the Supreme Court in Mohamed Iqbal Madar Sheikh v. State of Maharashtra, (1996) 1 SCC 722, and Sanjay Dutt v. State, (1994) 5 SCC 410, had taken a view that an accused can invoke his right for statutory bail if the court has not taken cognizance of the complaint before the expiry of the statutory period from the date of remand while a completely different view had been taken in Suresh Kumar Bhikamchand Jain v. Stateof Maharashtra, (2013) 3 SCC 77. Further, in different cases the similar issue had been referred to a larger Bench.

Factual Analysis

The Court made the following observations:

  1. The complaint under Section 439(2) of the Companies Act, 2013 was filed before the expiry of the 60-day period from the date of the remand.
  2. The applications filed for statutory bail were dismissed by the Special Court on the ground that the charge-sheet was filed before the expiry of 60 days.
  3. Respondents did not argue before the Special Court that they were entitled for statutory bail, even after filing of the charge-sheet before the expiry of the 60-day period, as cognizance had not been taken.

Hence, the Bench opined that the High Court had failed to consider the order passed by the Trial Court dismissing the applications seeking statutory bail.

Regular Bail vis-à-vis Statutory Bail

Observing that the scheme of the provisions relating to remand of an accused first during the stage of investigation and thereafter, after cognizance is taken, indicates that the legislature intended investigation of certain crimes to be completed within the period prescribed therein, the Bench stated that once the chargesheet is filed within the stipulated period, the right of the accused to statutory bail come to an end and the accused would be entitled to pray for regular bail on merits.

Clarifying that the two stages are different, with one following the other so as to maintain continuity of the custody of the accused with a court, the Supreme Court in Bhikamchand Jain’s case had held that in the event of investigation not being completed by the investigating authorities within the prescribed period, the accused acquires an indefeasible right to be granted bail, if he offers to furnish bail and the court has no option but to release the accused on bail. However, on filing of the charge-sheet within the stipulated period, the accused continues to remain in the custody of the Magistrate till such time as cognizance is taken by the court, when the said court assumes custody of the accused for purposes of remand during the trial in terms of Section 309, CrPC.

On the issue as to whether the Court had taken a different view in the cases relied on by the intervenor, the Bench observed that in Sanjay Dutt (supra), the Court held that the custody of the accused after the challan has been filed is not governed by Section 167(2) but different provisions of the CrPC while in Madar Sheikh, it was held that the right conferred on an accused under Section 167(2) cannot be exercised after the charge-sheet has been submitted and cognizance has been taken.

Pertinently, filing of charge-sheet is sufficient compliance with the provisions of proviso (a) to Section 167(2), CrPC and that taking of cognizance is not material to Section 167.

Conclusion

The Bench noted that reference to a larger bench pertains to the issue of exclusion or inclusion of the date of remand for computation of the period prescribed under Section 167, therefore differentiating the same the Bench applied the law as laid down in Bhikamchand Jain’s case to hold that the conclusion of the High Court that the accused cannot be remanded beyond the period of 60 days under Section 167 and that further remand could only be at the post-cognizance stage, was not correct. Accordingly, the impugned order was set aside.

[Serious Fraud Investigation Office v. Rahul Modi, 2022 SCC OnLine SC 153, decided on 07-02-2022]


*Judgment by: Justice L. Nageswara Rao


Appearance by:

For the Appellant: Aman Lekhi, Additional Solicitor General

For Respondents 1 and 2: Vikram Choudhri, Senior Advocate

For the Intervenor: Mukul Rohatgi


Kamini Sharma, Editorial Assistant has put this report together


 

Kerala High Court
Case BriefsHigh Courts

Kerala High Court: N.Nagaresh, J., pronounced a landmark judgment regarding right to practice of Chartered Accountants. The Bench held,

“The decision of ICAI not to recognize and record the retirement of the petitioner from ‘M/s. R. Kumar and Associates’ will therefore cause unnecessary and unwarranted hindrance to the professional advancement of the petitioner. It will offend the fundamental right of the petitioner to practice a profession freely, guaranteed to him under Article 19(1)(g) of the Constitution of India.”

The petitioner, a registered Chartered Accountant was aggrieved by the refusal of the Institute of Chartered Accountants of India (ICAI) to register his sole proprietorship on its website. The grievance of the petitioner was that he was the only working partner of ‘R Menon & Associates’ which was a partnership at will, though the petitioner had sent an application to ICAI to record the dissolution of the firm and to delete his name from the records pertaining to the said firm in all capacities, it had not been recorded due to want of confirmation from other Partners, namely respondent 2 and respondent 3.

Additionally, the petitioner had proposed to register “Joshi John & Co.” as a sole proprietorship. Though with the interference of the Court, the petitioner was allowed to submit Form-18 for the registration of new firm, since the name of the dissolved Firm still exists in the records of ICAI, he was denied the right to apply for Multi Purpose Empanelment to obtain audit assignments of Banks and Public Sector Undertakings.

Stand Taken by ICAI

ICAI asserted that that when an activity of dissolution of a Partnership Firm is pending, another activity of registration of a Proprietary Firm cannot be initiated. ICAI further submitted that in view of Section 27(1) of the Chartered Accountants Act, 1949, where a Chartered Accountant in practice or a Firm, has more than one office in India, each one of such offices shall be in the separate charge of a member of the Institute of Section 27(1) of the Act and of the Regulation 187(1), the petitioner cannot register his sole proprietorship in the self-service portal at a different address unless he is relieved as in-charge of the Head Office of the Firm.

To reject the petitioner’s request for dissolution of firm ICAI relied on 165th meeting of the Institute held during 24th – 26th November, 1993, wherein it had been laid down that:

“In case of intimation of existence of dispute between/among partners received from the firm/other partners a suitable note would be kept in the records of the Institute and retirement will not be noted; and

The fact that there was dispute among the partners of a firm would also be intimated to the C.&A.G./RBI while furnishing the particulars of the firm for empanelment of bank/C.&A.G. audit.”

Findings of the Court

The issue before the Court was when a partnership firm of Chartered Accountants is dissolved or when one of the partners retires, can the Council refuse to recognize the dissolution or retirement, in the absence of unanimous approval thereof by all existing partners? The Bench stated that the actions of ICAI were such that the petitioner would either have to wait till the other partners agree either to the dissolution of the Firm or to the retirement of the petitioner from the Firm, in order to come out of the earlier partnership.

Whether consent of other partners required for dissolution of a Partnership at will?

The Bench observed that the Scheme and provisions of the CA Act, 1949 is not intended to register the partnerships of CAs or regulate inter se relations or disputes between partners. The Regulation 190 of CAs Regulations, 1993 is intended only to regulate the Trade name or Firm name of Chartered Accountants. Hence, registration and regulation of a partnership Firm of CAs would be governed by the Indian Partnership Act, 1932. It was not disputed that ‘M/s. R. Menon and Associates’ was a partnership at will. The Court expressed,

Section 43 of the Partnership Act, 1932 provides that when a partnership is ‘at will’, the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm. The Firm is dissolved as from the date mentioned in the notice and if no date is so mentioned, as from the date of communication of the notice.”

According to the dissolution notice sent by the petitioner the date of dissolution mentioned therein was 20.12.2019. Therefore, as per Section 43 of the Partnership Act, the Firm ‘M/s. R. Menon and Associates’ should ordinarily be treated as dissolved from that date. Similarly, section 32(1)(c) of the Partnership Act, 1932 provides that a partner may retire, where the partnership is at will, by giving notice in writing to all other partners of his intention to retire. The petitioner had given notice of his retirement to respondents 2 and 3, thus, the petitioner stands retired from the partnership namely ‘R. Menon and Associates’.

Hence, ICAI could not deny to recognize such retirement. The forcible continuance of the petitioner, as a partner of a Firm which was loaded with partnership disputes, has civil consequences also on the petitioner. As per the general decisions taken by the Council, the Council had to communicate the existence of disputes among partners to C & A.G. and RBI, while furnishing the particulars of a Firm for empanelment of Bank/C&AG audits. Such recording and communication will affect the chances of the petitioner to get audit assignments. Therefore, the decision of ICAI not to recognize and record the retirement of the petitioner from ‘M/s. R. Kumar and Associates’ will cause unnecessary and unwarranted hindrance to the professional advancement of the petitioner and will offend the fundamental right of the petitioner to practice a profession freely, guaranteed to him under Article 19(1)(g) of the Constitution. The petitioner was therefore held entitled to reliefs; ICAI was directed to recognize the retirement of the petitioner from the Firm ‘M/s. R. Kumar and Associates’.

[Joshi John v. Institute of Chartered Accountants, 2021 SCC OnLine Ker 1876 , decided on 26-04-2021]


Kamini Sharma, Editorial Assistant has put this report together 

Appearance before the Court by:

Counsel for the Petitioner: V.M.Krishnakumar

Counsel for the Respondents: M.Gopikrishnan Nambiar, K.John Mathai, Joson Manavalan, Kuryan Thomas, Paulose C. Abraham, Ann Maria Francis, B.S.Suraj Krishna and Febin Raj T.S.

National Company Law Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal (NCLT): A Division Bench of Chandra Bhan Singh (Technical Member) and Suchitra Kanuparthi (Judicial Member) dismissed an application that was filed under Section 9 of Insolvency & Bankruptcy Code, 2016 against Bigdream Ventures Private Limited, Corporate Debtor, for initiating Corporate Insolvency Resolution Process (CIRP).

A partner of the petitioner partnership firm had filed the instant application claiming an amount of Rs 11,03,150 plus interest @ 12% p.a. from the Corporate Debtor. The Petitioner was engaged in providing services of pathology laboratory. The Corporate Debtor was engaged in managing, running and operating hospitals and providing various medical services including and limited to OPD, IPD, ICU and other critical medical facilities. The Corporate Debtor had approached the Petitioner to provide certain pathology services on a regular basis while operating and managing one hospital, for which they demanded interest free refundable deposit of Rs 9,00,000, it was mutually agreed that for the pathology services provided, the petitioner shall issue a monthly-statements containing the details and same shall be immediately paid, in full, upon the receipt. The petitioner had transferred the said amount to the Corporate Debtor, contrary to mutually agreed terms; the Corporate Debtor started making delayed payment.

The Corporate Debtor on the other hand contended that the petitioner was not registered under the Partnership Act, 1932 and it was merely managing the business another legal entity i.e. “Aarogyam Multi-speciality Hospital Pvt. Ltd.”. The contractual relationship is between the Petitioner and Aarogyam Multi-speciality Hospital Pvt. Ltd. and not between the Petitioner and the Corporate Debtor.

The Tribunal while dismissing the application found that petitioner was an unregistered partnership firm and, there has been the certain business relationship between the petitioner and thus amounts were paid by the Corporate Debtor to the Petitioner, even though the bills/invoices were actually raised in the name of Arogyam Hospitals who actually engaged the pathological services of the petitioner at the behest of the Corporate Debtor and it was evident that the Invoices were not raised against the Corporate Debtor.

The facts also revealed that Arogyam Hospital was run by the Corporate Debtor, but there was no contractual relationship between the petitioner and corporate debtor as the basis of the claim is in the name of Arogyam Hospitals.

The medical Council rules further prohibited such practise of referral fee on the commission basis and therefore such contracts were void and unenforceable contracts. [Shree Pathology Laboratory v. Bigdream Ventures (P) Ltd., 2020 SCC OnLine NCLT 806, decided on 10-08-2020]


*Suchita Shukla, Editorial Assistant has put this story together