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Madhya Pradesh High Court · body

2010 DIGILAW 560 (MP)

S. N. Virmani v. Som Distilleries Ltd.

2010-05-17

R.C.MISHRA

body2010
ORDER R.C. Mishra, J. 1. These petitions, under Section 482 of the Code of Criminal Procedure (for short "the Code"), are interrelated as arising from the same transaction leading to filing of three complaints against the Petitioner and six other accused persons including firm M/s Jai Matadi Enterprises (hereinafter referred to as 'the accused-firm") for dishonour of respective cheques. A common prayer has been made in all the petitions for quashing the corresponding criminal proceedings pending before Chief Judicial Magistrate, Bhopal as R.T. Nos. 6387/2004, 4628/2004 and 8407/2004 respectively. In those cases, cognizance of the offence punishable under Section 138 of the Negotiable Instruments Act, 1881 (for brevity 'the Act') was taken against the Petitioner upon complaints made on behalf of Respondent-company namely M/s Som Distilleries Limited (hereinafter referred to as the "complainant-company"). For the sake of convenience, the relevant particulars of the cheques may be tabulated as under - Sl.No. Case Case No. Cheque No. Amount covered Cheque Date of Demand notice Service of notice (i) 4628/2004 455953 11 lacs 30-1-2003 21-3-2003 2-4-2003 (ii) 6387/2004 455954 11 lacs 28-2-2003 3-6-2003 14-6-2003 (iii) 8407/2004 455955 11 lacs 28-3-2003 30-9-2003 15-10-2003 2. Allegations as contained in the complaints may be summarized thus - (a) The complainant-company is engaged in the business of manufacturing and sale of various types of liquor. The accused-firm is a partnership firm having the Petitioner and 5 others namely Sanjeev Datta, Arvind K. Bhasin, Lalit Malhotra, Sameer Goel and Sanjay Sood arraigned as accused Nos. 2 to 7 as its partners. They are jointly and severally dealing the day-to-day business of the firm. As per terms of the agreement dated 19-3-2001 (for brevity 'the first agreement'), the complainant-company had appointed the accused-firm as their distributor for sale of country liquor in Delhi for a period from 1-4-2001 to 31-3-2002. Accordingly, the accused-firm had undertaken obligations to bear the total cost of operation at Delhi and to issue cheque in favour of the complainant-company against agreed price of each consignment supplied after deducting the actual freight paid by the firm. However, the individuals composing the firm failed to maintain the financial discipline with the result that a huge amount became due and payable to the complainant-company. (b) Despite repeated demands, the partners of the firm including the Petitioner failed to clear the outstanding dues. Ultimately, on behalf of the firm, the accused No. 3 to 5 viz. However, the individuals composing the firm failed to maintain the financial discipline with the result that a huge amount became due and payable to the complainant-company. (b) Despite repeated demands, the partners of the firm including the Petitioner failed to clear the outstanding dues. Ultimately, on behalf of the firm, the accused No. 3 to 5 viz. Sanjeev Datta, Arvind K. Bhasin, Lalit Malhotra approached the complainant-company with a request to settle their disputes amicably. In response, the company agreed to accept payment of Rs. 72 lacs in a phased manner. Terms of settlement were duly negotiated and were reduced in the form of the agreement dated 20-11-2002 (for short 'the second agreement') that was signed by all the three partners. They categorically agreed to pay sum of Rs. 11 lacs per month initially for five months and then, the remaining Rs. 8 lacs in the sixth month and balance sum of Rs. 9 lacs in the seventh month. Accordingly, 7 postdated cheques including the cheques in question were issued. (d) Although, the first two cheques dated 1-12-2002 and 30-12-2002 for Rs. 11 lacs each were honoured by the bank but before the due date of the third, fourth and fifth cheque Nos. 455953, 455954 and 455955 each for a sum of Rs. 11.00 lacs, the accused persons had requested the complainant-company not to present the same for encashment and requested for enlargement of time. As the request was acceded to by the complainant-company, each one of the cheques was finally presented by the company through their bankers on 11-3-2003, 23-5-2003 and 16-9-2003 respectively but the cheques were returned with the endorsement "exceeds arrangement'. (e) Thereafter, despite due service of the corresponding demand notices (as reflected in the table above), the accused-firm and its partners failed to pay the amount covered by each cheque within the stipulated period. 3. Learned Counsel for the Petitioner has strenuously contended that his prosecution for dishonour of cheques issued by Sanjeev Datta, Arvind K. Bhasin and Lalit Malhotra in respect of the liability incurred by them for their own benefit is an abuse of the process of the Court. For this, attention has been invited to the admitted fact that the Petitioner is neither a party to the second agreement nor a signatory thereof. For this, attention has been invited to the admitted fact that the Petitioner is neither a party to the second agreement nor a signatory thereof. According to him, by virtue of Section 42(c) of the Indian Partnership Act, 1932, the partnership-firm stood dissolved by the death of Rakesh Raman Khurana, a partner thereof, on 10-9-2002 and, therefore, was not in existence on the date of filing of anyone of the complaints. He is further of the view that the act of former partners could not bind the accused-firm nor could it be gathered that they had an intention to bind the firm. To buttress the contention, reference has been made to the following facts as averred in the petition - (i) The Respondent viz. Som Distilleries Ltd. had filed two complaints before the Court of Chief Judicial Magistrate on 27-5-2002 and 2-8-2002 respectively against the accused firm and five of its partners namely S.N. Virmani, Sanjeev Datta, Arvind K. Bhasin, Lalit Malhotra and Shri Rakesh Raman Khurana. Both complaints were forwarded, under Section 156(3) of the Code of Criminal Procedure, to Station House Officer of Police Station M.P. Nagar, Bhopal for investigation. On the basis of these complaints, two criminal cases were registered at P. S. M.P. Nagar, Bhopal, first one as Crime No. 315/02 for the offences under Sections 407, 408, 409, 420, 467, 468, 471, 120B read with Section 149 of the Indian Penal Code and the second as Crime No. 430/02 in respect of the offences under Sections 406, 420, 120B, 408 and 471 of the Indian Penal Code. (ii) The proceedings against Rakesh Raman Khurana abated consequent to his death whereas on 20-11-2002, in order to get themselves immunized from the prosecution, Sanjeev Datta, Arvind K. Bhasin and Lalit Malhotra agreed to pay a sum of Rs. 72 lacs by way of 7 cheques. Further, the trial Magistrate, upon the application made by the complainant-company in this behalf, permitted withdrawal of the complaint as against Arvind K. Bhasin and Lalit Malhotra. (iii) All the seven cheques issued by Sanjeev Datta, Arvind K. Bhasin and Lalit Malhotra under the second agreement were dishonoured. 72 lacs by way of 7 cheques. Further, the trial Magistrate, upon the application made by the complainant-company in this behalf, permitted withdrawal of the complaint as against Arvind K. Bhasin and Lalit Malhotra. (iii) All the seven cheques issued by Sanjeev Datta, Arvind K. Bhasin and Lalit Malhotra under the second agreement were dishonoured. However, complainant-company preferred to file complaints in relation to dishonour of three cheques against the firm and 6 others namely S.N. Virmani, Sanjeev Datta, Arvind K. Bhasin, Lalit Malhotra, Sameer Goyal and Sanjay Sood describing them as partners of the firm despite the fact that with the death of Rakesh Raman Khurana on 10-9-2002, the firm stood dissolved. Moreover, in the complaints leading to registration of Crime No. 315/02 and 430/02, Sameer Goyal and Sanjay Sood were not named as accused. 4. In response, learned Counsel for the complainant-Company has submitted that prosecution of the firm and its partners for dishonour of cheques issued on its behalf by some of the partners is fully justified. According to him, the question as to whether the liability contemplated, under Section 138 of the Act, was subsisting or stood discharged at the relevant date or could be deemed to have been wiped out, cannot be considered in the present proceedings under Section 482 of the Code. It has also been contended that in view of existence of a prima facie case against the Petitioner in each one of the cases, defences raised by him cannot be looked into at this stage because all the conditions as contemplated in Section 138 of the Act are questions of fact required to be proved by evidence. 5. At the outset, it may be observed that the petition is silent on the point as to whether any deed was executed to constitute the partnership. Further, there is nothing on record to suggest that duration of the partnership was undefined. In such a situation, it is not possible to hold that the accused-firm was brought into existence as a partnership at will. This apart, the fact that the cheques in question were issued for and on behalf of the firm for being encashed from its account only is sufficient to raise presumption that death of Rakesh Raman Khurana had not caused dissolution of the partnership. 6. This apart, the fact that the cheques in question were issued for and on behalf of the firm for being encashed from its account only is sufficient to raise presumption that death of Rakesh Raman Khurana had not caused dissolution of the partnership. 6. In other words, the general principle of dissolution of the firm as contained in Section 42(c) of the Partnership Act, 1932 is not attracted as the conduct of the partners clearly evidenced a contract that the partnership would not be dissolved upon death of any partner. The crucial question, therefore, is as to whether the second agreement is binding on all the partners of the accused-firm. 7. Before entering into the merits of the rival contentions in this regard, it would be necessary to first advert to the relevant provisions of the Partnership Act in the form of Sections 2(a), 18, 19, 22 and 28 thereof. For a ready reference, these sections may be reproduced as under - 2(a) an "act of a firm" means 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; 18. Partner to be agent of the firm. - Subject to the provisions of this Act, a partner is the agent of the firm for the purposes of the business of the firm. 19. Implied authority of the partner as agent of the firm. - (1) Subject to the provisions of Section 22, the act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm, binds the firm. The authority of a partner to bind the firm conferred by this Section is called his "implied authority". - (1) Subject to the provisions of Section 22, the act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm, binds the firm. The authority of a partner to bind the firm conferred by this Section is called his "implied authority". (2) In the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to - (a) submit a dispute relating to the business of the firm to arbitration, (b) open a banking account on behalf of the firm in his own name, (c) compromise or relinquish any claim or portion of a claim by the firm, (d) withdraw a suit or proceeding filed on behalf of the firm, (e) admit any liability in a suit or proceeding against the firm, (f) acquire immovable property on behalf of the firm, (g) transfer immovable property belonging to the firm, or (h) enter into partnership on behalf of the firm. 22. Mode of doing act to bind firm. - In order to bind a firm, an act or instrument done or executed by a partner or other person on behalf of the firm shall be done or executed in the firm name, or in any other manner expressing or implying an intention to bind the firm. 28. Holding out. - (1) Any one who by words spoken or written or by conduct represents himself, or knowingly permits himself to be represented, to be a partner in a firm, is liable as a partner in that firm to any one who has on the faith of any such representation given credit to the firm, whether the person representing himself or represented to be a partner does or does not know that the representation has reached the person so giving credit. (2) Where after a partner's death the business is continued in the old firm name, the continued use of that name or of the deceased partner's name as a part thereof shall not of itself make his legal representative or his estate liable for any act of the firm done after his death. 8. (2) Where after a partner's death the business is continued in the old firm name, the continued use of that name or of the deceased partner's name as a part thereof shall not of itself make his legal representative or his estate liable for any act of the firm done after his death. 8. Learned Counsel for the Petitioner, while placing reliance on pronouncement of a Division Bench of Madras High Court in Chainraj Ramchand v. V.S. Narayanaswamy AIR 1982 Mad 326 , has vehemently contended that in absence of an express authority, Sanjeev Datta, Arvind K. Bhasin and Lalit Malhotra could not enter into any compromise in respect of the claim made by the complainant-company against the firm. Reference has been made to the decision of a single Bench of Gujarat High Court in Porbandar Commercial Co-op. Bank Ltd. v. Bhanju Lavji AIR 1985 Guj 106 to substantiate the contention that if the basic requirement of Section 19(1) [supra] is not satisfied, the compliance with the procedure contemplated in Section 22 would remain an abortive exercise. Reliance has also been placed to the decision of the Madras High Court in M.M. Abbas Bros. v. Chethandas AIR 1979 Madras 272 wherein it was held that a person, in absence of indication in the instrument to show that he was signing on behalf of the firm, merely describing himself as a partner, cannot bind the firm. This apart, to fortify the contention that the complainant-company was not entitled to treat the Petitioner as partner of the accused-firm due to an unauthorized use of chequebook by Sanjeev Datta, Arvind K. Bhasin and Lalit Malhotra, an English decision rendered in Tower Cabinet Co. Ltd. v. Ingram (1949) 1 All ER 1033 has also been cited. It deals with the doctrine of holding out as contained in Section 14(1) of the English Partnership Act, 1890 which is in pari materia with Section 28(1) of the Indian Partnership Act. In that case, Ingram had given notice to the firm's bankers that he had ceased to be a partner. As such, the decision in Tower Cabinet's case is of little assistance to the Petitioner. In that case, Ingram had given notice to the firm's bankers that he had ceased to be a partner. As such, the decision in Tower Cabinet's case is of little assistance to the Petitioner. Further, as stated in M.M. Abbas, the general principle of law is that every one of the partners in a mercantile firm is liable upon a bill drawn by a partner in the recognised trading name of the firm for a transaction incidental to the business of the firm. Moreover, there cannot be any quarrel with the proposition, as reiterated in the other precedents cited on behalf of the Petitioner, that operation of Sections 18 and 19(1) is subject to exceptions engrafted in Sub-section (2) of Section 19 of the Partnership Act. 9. In India, one of the earliest cases wherein the question of liability of a partner upon the documents drawn by another partner was considered is Karmali Abdulla v. Karimji Jwanji ILR 39 Bom. 261 wherein it was held that one partner could be held liable upon Handles drawn by another partner in respect of a transaction which was a partnership transaction. Abdul Rahman v. Afzal Husain AIR 1933 Oudh 259 is yet another case that relates to the period prior to the coming into force of Indian Partnership Act. In that case, it was held that by virtue of Section 251 of the Contract Act, a contract entered into by one of the partners in course of business binds all partners. A Division Bench of Allahabad High Court in Pt. Lalmani Pande v. Lala Gopal Sah AIR 1945 All 221 had the occasion to interpret Section 22 of the Indian Partnership Act. It was held that where two brothers were carrying on business in partnership, a pronote executed by one would be deemed to be executed by both of them. Furthermore, in Chandan Lal v. Amin Chand Mohan Lal AIR 1960 P&H 500 , Justice Tek Chand, speaking for the Division Bench, made the following illuminating observations - When a negotiable instrument is drawn by a partner in a trading firm, the other partner is not any the less liable, because his name does not appear on the face of the instrument. Vide Bunarsee Das v. Gholam Hossein 13 Moo Ind App 358, and Moti Lal Manucha v. Unao Commercial Bank Ltd. AIR 1930 PC 238. Vide Bunarsee Das v. Gholam Hossein 13 Moo Ind App 358, and Moti Lal Manucha v. Unao Commercial Bank Ltd. AIR 1930 PC 238. To such a relationship the maxim "qui facit par alium facit per se", applies and a person who does an act through another is deemed to do it himself. 10. To explain the legal position, two decisions of the Apex Court may also be referred to. In Devji v. Magan Lal R. Atharana AIR 1965 SC 139 , it was pointed out that where the partner had taken sub-lease not in the name of the firm but in his own name, the transaction would not bind the firm whereas in Rajendran v. Shankar Sundaram : (2008) 2 SCC 724 :2008 (2) MPLJ (SC) 495 it was explained that where the amount of loan was advanced by a cheque drawn in the name of partnership firm, the liability of the partners could not be ignored. 11. Taking into consideration the well settled position of law on the point as applicable to the factual scenario as highlighted above, the Petitioner was prima facie liable for the dishonour of cheques as the partner of the firm on whose behalf the negotiable instruments were issued. The obvious reasons may be enumerated in the following terms - (i) Admittedly, the Petitioner in all the three cases namely S.N. Virmani was one of the partners of accused-firm that was authorised by the complainant-company by the first agreement to act as their bottling agent for distribution of country liquor at vetted average price for their CLW-9 excise license during the period from 1-4-2001 to 31-3-2002. (ii) As per Clause XIII of the first agreement, the Petitioner had taken personal responsibility and had offered personal guarantee about payment of outstanding amount even through his own resources. (iii) It is true that only three partners namely Sanjeev Datta, Arvind K. Bhasin and Lalit Malhotra had issued the cheques on behalf of the firm but fact of the matter is that the instruments were issued by making reference to Clause XIII of the first agreement. (iv) There was no other independent transaction between the drawers of the cheques and the drawee viz, the complainant-company. 12. It is trite law that at the stage of taking cognizance, the evidence sufficient for initiating action and not for recording a conviction must be available on record. (iv) There was no other independent transaction between the drawers of the cheques and the drawee viz, the complainant-company. 12. It is trite law that at the stage of taking cognizance, the evidence sufficient for initiating action and not for recording a conviction must be available on record. Besides this, in exercising jurisdiction under Section 482 of the Code, this Court should not embark upon an enquiry whether the allegations in the complaint are likely to be established by evidence or not (See. State of Bihar v. Murad Ali Khan AIR 1989 SC 2222 ). 13. The offence is a strict liability offence, which excludes the defence other than permissible as the conditions set out in Section 138 of the Act. Moreover, Section 139 of the Act creates a presumption, in favour of the holder of the dishonoured cheque that it was issued in discharge of a 'debt' or 'other liability'. The presumption, of course, can be rebutted by leading cogent evidence. This apart, as explained by the Supreme Court in T.K. Koya v. K. Devaraj (2005) 13 SCC 705 , for quashing a complaint relating to bouncing of the cheque, under the inherent powers, this Court is not concerned with the defence of the accused. 14. For these reasons, it is not possible to conclude that the allegations made in any one of the complaints even if taken at their face value and accepted in its entirety, would not constitute the offence under Section 138 of the Act. The defences raised by the Petitioner would require inquiry into the facts and cannot be considered at the preliminary stage for the purpose of quashing the complaint and the proceedings initiated on its basis. In this view of the matter, no case for interference under inherent powers is made out. 15. In the result, all the petitions are hereby dismissed. As an obvious consequence, the interim order staying the criminal proceedings in each one of the petitions stands vacated. However, nothing contained herein shall be construed as any expression of opinion on the merits of the case. It shall still be open to the Petitioner to raise all such pleas as are available under law. 16. Copy of this order be retained in the connected M.Cri.Cs.