Section 138 NI Act - No Vicarious Liability For Cheque Dishonour Merely Beacuse A Person Was A Partner Or Stood Guarantor For Loan : Supreme Court

The Supreme Court on Monday held that a person cannot be convicted for the offence of dishonour of cheque under Section 138 of the Negotiable Instruments Act 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.

Vicarious liability under Section 141 of the NI Act cannot be fastened upon a person merely because the civil liability under the Partnership Act falls upon the partner, the Court said in this case Dilip Hariramani vs Bank of Baroda.

"The Partnership Act, 1932 creates civil liability. Further, the guarantor's liability under the Indian Contract Act, 1872 is a civil liability. The appellant 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) 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," a bench comprising Justices Ajay Rastogi and Sanjiv Khanna observed.

The Court added that unless the company or the firm commits the offence, vicarious liability under Section 141 cannot be attracted.

"..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. 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," the Court said. 

The bench was deciding an appeal challenging the conviction of the appellant for the dishonour of a cheque issued by a firm in which he was a partner. The cheque was signed by another partner. The firm was not made an accused in the complaint.

The Supreme Court noted that it was the appellant, admittedly, had not issued any of the cheques, which had been dishonoured, in his personal capacity or otherwise as a partner. In the absence of evidence to establish that the appellant was responsible for the conduct of affairs at the firm towards the issuance of the cheques, the conviction has to be set aside, the Court added.

"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. However, such vicarious liability arises only when the company or firm commits the offence as the primary offender", the Court observed.

"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", said the Court allowing the appeal.

Case Title : Dilip Hariramani vs Bank of Baroda

Citation : 2022 LiveLaw (SC) 457

Appearances for the Petitioner – Mr. Pramod Kr. Dubey, Senior Advocate with Mr. Ravi Sharma, Ms. Pinky Dubey, Mrs. Madhulika Rai Sharma, Mr. Anurag Andley, Mr. Shashank Dewan, Mr. Prince Kumar and Ms. Anjani Kumar Rai

Appearances for Respondent – Ms. Praveena Gautam, Mr. Pawan Shukla, Mr. Raja Ram, Mr Aman S. Sharma, Mr. Anand Rastogi

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