Author: Ayushi Mendhiratta, Panjab University
CASE ANALYSIS ON:-
Dilip Hariramani vs Bank Of Baroda on 9 May, 2022
DILIP HARIRAMANI ………….APPELLANT
VERSUS
BANK OF BARODA ………….RESPONDENT
HON’BLE SUPREME COURT OF INDIA
CRIMINAL APPEAL NO. 767 OF 2022
(ARISING OUT OF SPECIAL LEAVE PETITION (CRIMINAL) NO. 641 OF 2021)
DECIDED ON:- 9 May, 2022
BACKGROUND OF THE CASE: The case highlights the limited scope of criminal liability, where civil suits can be filed to recover the debt amount. To hold a partner vicariously liable for a firm, association, or company’s actions under the Negotiable Instruments Act 1881, the prosecution must prove the partner’s active role in managing or executing the daily affairs of the entity. Additionally, to punish a director, partner, or guarantor under the NI Act, the prosecution must name the company or firm as the main or primary accused.
FACTS OF THE CASE:- The respondent ( Bank of Baroda ) credited the loan amount of Rs 6,73,80,000/- to the partnership firm named as – M/s. Global Packaging on 04th October 2012. For the partial repayment of the loan, the company issued three cheques of Rs. 25,00,000/- each on 17th October 2015, 27th October 2015, and 31st October 2015 through its authorised signatory (Simaiya Hariramani). To the respondent’s surprise, the cheques were dishonoured with a return memo stating the insufficiency of funds in the Appellant’s account.
Thereafter, the Bank of Baroda issued a demand notice U/s 138 of the NI ACT 1881 to the appellant on 4th November 2015. On account of the failure of payment by the company, the bank filed a criminal complaint against Simaiya Hariramani ( accused no.1 ) and Dilip Hiraramani ( accused no.2 ) under Section 138 NI Act 1881 before the Court of Judicial Magistrate, Balodabazar, Chhattisgarh.
Consequently, on 19th February 2019, the lower court issued a verdict against the company, sentencing both the accused to six months’ imprisonment along with the payment of Rs. 97,50,000/- as compensation under S. 357(3) of the Code of Criminal Procedure, 1973.
Later, the convicted persons filed appeals with the appellate courts. The high court dismissed the quashing petition under section 482 of the CrPC. Hence, Dilip Hariramani ( Director) filed a Special Leave Petition before the apex court, which subsequently got transmuted to a criminal appeal.
ISSUES FRAMED BY COURT:- 1 ) whether a criminal complaint under section 138 of the NI ACT 1881 can be maintained against the director without any specific or pointed allegations against him?
2 ) Whether the director or partner of the company can be held vicariously liable under the NI Act without any assigned role or responsibility in handling daily affairs or conduct?
3) Whether the High Court’s decision to dismiss the quashing petition erroneous?
ARGUMENTS BY APPELLANT:- The counsel on behalf of the appellant argued that to make a partner or director liable under section 141 of the NI ACT 1881, there must be clear proof of some specific averments attributed to the person. However, the prosecution had made only bald statements regarding him, directing that no specific role had been assigned to the appellant in handling the company’s daily conduct.
Further, the counsel backed the case by relying on the judgment delivered in the case of SMS Pharmaceuticals v. Neeta Bhalla (2005) and Pooja Ravinder Devidasani v. State of Maharashtra (2014), where the court stated that to make a person accountable under the said section, the person must be held responsible for the conduct or daily affairs of the company.
Moreover, to hold a person vicariously liable under section 141 of the said act, the company should be arraigned as the primary accused.
ARGUMENTS BY RESPONDENT:- The counsel on behalf of the respondent opined that since the designation of the appellant as Director of the company is irrefutable, there is a prima facie presumption of his responsibility in handling the day-to-day affairs of the company.
The counsel contended that the criminal complaint was not erroneous or malicious, as the bank followed all the requisites of the said act.
Since the appellant was the director of the company at the relevant time, his actual involvement in the offence should be adjudicated during trial .
RELEVANT LEGAL PROVISIONS:-
“Section 138 in The Negotiable Instruments Act, 1881
138. Dishonour of cheque for insufficiency, etc., of funds in the account.—
Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both:Provided that nothing contained in this section shall apply unless—(a)the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;(b)the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, [within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and(c)the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.
Explanation.—For the purposes of this section, “debt or other liability” means a legally enforceable debt or other liability.]”
“Section 141 in The Negotiable Instruments Act, 1881
141. Offences by companies. —
(1)If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence:
Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.
(2)Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.Explanation.—For the purposes of this section,—(a)“company” means any body corporate and includes a firm or other association of individuals; and(b)“director”, in relation to a firm, means a partner in the firm.”2
DECISION OF THE APEX COURT:- The Supreme Court allowed the criminal complaint under section 138 to be quashed since there were no specific averments attributed to Dilip despite being the director of the company. The court opined that to hold a person vicariously liable for the act of the company under section 141 of the Negotiable Instruments Act 1881, mere designation as the director of the company is insufficient.
The court affirmed that to punish a person as per section 141 of the said act, the company must be arraigned as the primary accused. Since the requirement under the above-stated section was not complied with by the complainant, the suit is not maintainable.
The court differentiated between civil liability under section 25 of the Partnership Act 1932 and criminal liability under section 138 of the NI ACT 1881.
Due to the absence of specific allegations against the appellant, the court exercised its inherent powers under Article 136 of the Indian Constitution by setting aside the order passed by the High Court and quashing the criminal complaint against the appellant.
ANALYSIS OF THE AUTHOR:- The case demonstrates that the criminal liability of an individual is personal. A person cannot be made criminally responsible for the act of another for holding a position or status in a legal entity or corporation. The case exhibits strict or mandatory compliance with the procedural norms of the act to hold a person accountable for their actions.
It portrays the court’s commitment to prevent abuse of the process of law by quashing the criminal complaint, which was not maintainable. The innocent should not suffer the hardship of attending court proceedings unless there is a strong or direct allegation against them, thus preserving their dignity.
However, quashing a case without a proper trial should be handled with utmost care and caution. Giving excessive weightage to the technical requirements may undermine the purpose of the Negotiable Instruments Act 1881 and hence, violate the complainant’s right to seek redress in white collar crimes.
CONCLUSION:- To deduce, criminal complaints under section 138 read with section 141 of the Negotiable Instruments Act 1881 mandate the compliance with the requisites of the section. A person cannot be held criminally responsible for the act of another for being designated as a director, guarantor or partner of the company. The case highlights the limited scope of criminal liability, where civil suits can be filed to recover the debt amount.
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