In CRIMINAL APPEAL NO. 767 OF 2022-SC-Vicarious liability u/s 141(1) of NI Act can be pinned when person is in overall control of day-to-day business; Merely being partner of firm or guarantor for loan does not make one criminally liable: SC Justices Ajay Rastogi and Sanjiv Khanna [09-05-2022]

Read Judgment: DILIP HARIRAMANI v. BANK OF BARODA 

Mansimran Kaur

New Delhi, May 10, 2022: The Supreme Court has observed that Section 141 of the Negotiable Instruments Act imposes 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.

Facts in brief were that the respondents-Bank of Baroda granted terms loans and cash credit facility to a partnership firm M/s. Global Packaging. It was alleged that in part payment of the loan, the authorized signatory issued three cheques but they were dishonored on presentation due to insufficient funds.Consequently, the respondent- bank manager filed a complaint under Section 138 of NI Act before the Court of Judicial Magistrate against the appellant and Simaiya Hariramani. 

In pursuance of the same, the Court of Judicial Magistrate convicted the appellant and Simaiya Hariramani under Section 138 of the NI Act.In view of the same, the appellant and Simaiya Hariramani preferred an appeal and the same was dismissed by the Sessions Court. Later, the High Court dismissed the appeal of the appellants. 

The Division Bench of Justice Ajay Rastogi and Justice Sanjiv Khanna observed that in the absence of any evidence led by the prosecution to depict that the appellant was in charge of and responsible for the conduct of the affairs of the firm, the conviction of the appellant shall be set aside on the same ground. 

Referring to the judgments of the Top Court in Girdhari Lal Gupta v. D.H. Mehta and Another and State of Karnataka v. Pratap Chand and Others., the Bench said that 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, an expression interpreted by this Court to mean a person in overall control of the day-to-day business of the company or the firm, the conviction of the appellant has to be set aside.

The Bench said, “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.” It was also opined that 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.  Further, 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, the Court remarked. The same proposition was reiterated in the cases of Sharad Kumar Sanghi v. Sangita Rane, Himanshu v. B. Shivamurthy and Another, and Hindustan Unilever Limited v. State of Madhya Pradesh.

In the light of the observations made above and precedents cited, the present appeal was allowed and accordingly the conviction was set aside under Section 138 of the Act read with Section 141 of the NI Act. The impugned judgments and the conviction orders were also set aside.