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2014 DIGILAW 1246 (PAT)

Amit Anand v. State of Bihar

2014-12-17

ANJANA PRAKASH

body2014
Order The Petitioners seek quashing of the order of cognizance dated 12.09.2013 passed by the Sub-Divisional Judicial Magistrate, Patna, in Special Case No.16 of 2012 arising out of Economic Offence P.S. Case No.05 of 2012 (in Cr. Misc. No.7226 of 2014) and Special Case No. 17 of 2012 arising out of Economic Offence P.S. Case No.06 of 2012 (in Cr. Misc. No.7409 of 2013). The case of the Deputy Superintendent of Police attached with Economic Offence Unit is that on the date of occurrence an inspection of two firms, namely, M/s Raj Laxami Enterprises and M/s Diamond Surgical respectively was carried out. It was found that number of materials were being sold on provisional papers without valid cash memos. On the basis of entries in the relevant register, it assessed the loss of sales tax to the tune of around thirteen lacs and four lacs respectively. Further, some of the items do not bear the manufacturer’s licence number which violates the Price Control Order punishable under Section 7 of the Essential Commodities Act and under the provision of Drugs and Cosmetics Act. Hence, the justification for filing the present Complaint Petitions. It was submitted on behalf of the Petitioners that there is no averment in the Complaint Petition as to which of the accused was in charge and responsible to the company for conduct of business and hence, they are not liable for prosecution on vicarious liability. In support of this proposition, learned counsel for the Petitioners relies on a decision reported in AIR 2014 Supreme Court 71 (A. K. Singhania Vs. Gujarat State Fertilizer Co. Ltd. & another With Gujarat State Fertilizer Co. Ltd. & Anr. Vs. Vikram Prakash & another) which was a case under the Negotiable Instrument Act of which Section 141 being pari materia to Section 34 of the Drugs and Cosmetics Act was considered. The facts of the aforesaid case under consideration was that in the Complaint Petition it was mentioned that accused nos. 1 to 5 were conducting all business and financial affairs of the accused company which was also decided, organized, administered by them. As for accused nos. The facts of the aforesaid case under consideration was that in the Complaint Petition it was mentioned that accused nos. 1 to 5 were conducting all business and financial affairs of the accused company which was also decided, organized, administered by them. As for accused nos. 6 to 12, who were Directors, the allegation was that business was conducted with their consultation and hence, all of them were responsible for the transaction and business, financial affairs and administration, on behalf of the accused company and hence were liable to be put on trial. The Apex Court held that there being no averment that the Accused nos. 7 and 9 were In-charge and responsible for conduct of business of the company at the time offence was committed they were not liable for prosecution. Similar is the proposition in the case of Monaben Ketanbhai Shah and another Vs. State of Gujarat and others (AIR 2004 Supreme Court 4274). Further submission of the Petitioners is that since the Company has not been arrayed an accused the Petitioners being partners cannot be prosecuted. For this proposition, he relies upon a decision reported in 2012(3) PLJR (SC) 103 (Aneeta Hada Vs. M/s Godfather Travels & Tours Pvt. Ltd.) which was considering the contrary views taken in the case of C.V. Parekh (1970) 3 SCC 491 and Sheoratan Agarwal and another Vs. State of Madhya Pradesh (1984) 4 SCC 352 and the case of Anil Hada Vs. Indian Acrylic Ltd. (2000)1 SCC 1 . The argument before the Court was that the case of Sheoratan Agarwal had incorrectly distinguished the decision rendered in the case of C.V. Parekh. Further argument was that in the case of Anil Hada, the Court had not appreciated in proper perspective the ratio decidendi in C. V. Parekh. On consideration of the cases, it was held that the decision in Sheoratan Agarwal ran counter to the ratio laid down in the case of C.V. Parekh by a larger bench, a binding precedent. So also, the decision in Anil Hada had to be treated as not laying down the correct law since it had held that the Director or any other Officer can be prosecuted without impleading the Company. The law then laid down by the Apex Court in the case of Aneeta Hada (supra) is as follows: 35. So also, the decision in Anil Hada had to be treated as not laying down the correct law since it had held that the Director or any other Officer can be prosecuted without impleading the Company. The law then laid down by the Apex Court in the case of Aneeta Hada (supra) is as follows: 35. With greatest respect to the learned Judges in Sheoratan Agarwal (supra), the authoritative pronouncement in C.V. Parekh (supra) has not been appositely appreciated. The decision has been distinguished despite the clear dictum that the first condition for the applicability of Section 10 of the 1955 Act is that there has to be a contravention by the company itself. In our humblest view, the said analysis of the verdict is not correct. Quite apart, the decision in C.V. Parekh (supra) was under Section 10(a) of the 1955 Act and rendered by a three-Judge Bench and if such a view was going to be expressed, it would have been appropriate to refer the matter to a larger Bench. However, the two-Judge Bench chose it appropriate to distinguish the same on the rationale which we have reproduced hereinabove. We repeat with the deepest respect that we are unable to agree with the aforesaid view. 36. In the case of Anil Hada (supra), the two-Judge Bench posed the question: when a company, which committed the offence under Section 138 of the Act eludes from being prosecuted thereof, can the Directors of that company be prosecuted for that offence. The Bench referred to Section 141 of the Act and expressed the view as follows: “12. Thus when the drawer of the cheque who falls within the ambit of Section 138 of the Act is a human being or a body corporate or even firm, prosecution proceedings can be initiated against such drawer. In this context the phrase “as well as” used in sub-section (1) of Section 141 of the Act has some importance. The said phrase would embroil the persons mentioned in the first category within the tentacles of the offence on a par with the offending company. Similarly the words “shall also” in sub-section (2) are capable of bringing the third category persons additionally within the dragnet of the offence on an equal par. The said phrase would embroil the persons mentioned in the first category within the tentacles of the offence on a par with the offending company. Similarly the words “shall also” in sub-section (2) are capable of bringing the third category persons additionally within the dragnet of the offence on an equal par. The effect of reading Section 141 is that when the company is the drawer of the cheque such company is the principal offender under Section 138 of the Act and the remaining persons are made offenders by virtue of the legal fiction created by the legislature as per the section. Hence the actual offence should have been committed by the company, and then alone the other two categories of persons can also become liable for the offence. 13. If the offence was committed by a company it can be punished only if the company is prosecuted. But instead of prosecuting the company if a payee opts to prosecute only the persons falling within the second or third category the payee can succeed in the case only if he succeeds in showing that the offence was actually committed by the company. In such a prosecution the accused can show that the company has not committed the offence, though such company is not made an accused, and hence the prosecuted accused is not liable to be punished. The provisions do not contain a condition that prosecution of the company is sine qua non for prosecution of the other persons who fall within the second and the third categories mentioned above. No doubt a finding that the offence was committed by the company is sine qua non for convicting those other persons. The provisions do not contain a condition that prosecution of the company is sine qua non for prosecution of the other persons who fall within the second and the third categories mentioned above. No doubt a finding that the offence was committed by the company is sine qua non for convicting those other persons. But if a company is not prosecuted due to any legal snag or otherwise, the other prosecuted persons cannot, on that score alone, escape from the penal liability created through the legal fiction envisaged in Section 141 of the Act.” On a reading of both the paragraphs, it is evincible that the two-Judge Bench expressed the view that the actual offence should have been committed by the company and then alone the other two categories of persons can also become liable for the offence and, thereafter, proceeded to state that if the company is not prosecuted due to legal snag or otherwise, the prosecuted person cannot, on that score alone, escape from the penal liability created through the legal fiction and this is envisaged in Section 141 of the Act. If both the paragraphs are appreciated in a studied manner, it can safely be stated that the conclusions have been arrived at regard being had to the obtaining factual matrix therein. However, it is noticeable that the Bench thereafter referred to the dictum in Sheoratan Agarwal (supra) and eventually held as follows:- “We, therefore, hold that even if the prosecution proceedings against the company were not taken or could not be continued, it is no bar for proceeding against the other persons falling within the purview of sub-sections (1) and (2) of Section 141 of the Act.” 37. We have already opined that the decision in Sheoratan Agarwal (supra) runs counter to the ratio laid down in the case of C.V. Parekh (supra) which is by a larger Bench and hence, is a binding precedent. On the aforesaid ratiocination, the decision in Anil Hada (supra) has to be treated as not laying down the correct law as far as it states that the Director or any other officer can be prosecuted without impleadment of the company. Needless to emphasize, the matter would stand on a different footing where there is some legal impediment and the doctrine of lex non cogit ad impossibilia gets attracted. He further relies upon the case of Sham Sundar and others Vs. Needless to emphasize, the matter would stand on a different footing where there is some legal impediment and the doctrine of lex non cogit ad impossibilia gets attracted. He further relies upon the case of Sham Sundar and others Vs. State of Harayana ( AIR 1989 SC 1982 ), where the following was held: “9. It is, therefore, necessary to add an emphatic note of caution in this regard. More often it is common that some of the partners of a firm may not even be knowing of what is going on day to day in the firm. There may be partners, better known as sleeping partners who are not required to take part in the business of the firm. There may be ladies and minors who were admitted for the benefit of partnership. They may not know anything about the business of the firm. It would be a travesty of justice to prosecute all partners and ask them to prove under the proviso to sub-section (1) that the offence was committed without their knowledge. It is significant to note that the obligation for the accused to prove under the proviso that the offence took place without his knowledge or that he exercised all due diligence to prevent such offence arises only when the prosecution establishes that the requisite condition mentioned in sub-section (1) is established. The requisite condition is that the partner was responsible for carrying on the business and was during the relevant time in charge of the business. In the absence of any such proof, no partner could be convicted. We, therefore, reject the contention urged by counsel for the State.” On the contrary, counsel for the Economic Offence Unit submits that since the accused persons are partners of the firm, each of them is bound by the provision of Sections 9 and 12 of the Indian Partnership Act, 1932, where each partner is equally and vicariously liable for conduct of the business and it is not for the prosecution at this stage to specify as to which of the partners was actually responsible for the same. He argues that it was for the accused partners to prove that offence was committed without their knowledge, in spite of their due diligence on their part, and, that a partnership firm not being a legal entity but merely an association of persons who have agreed to carry on business, each of the partner is an agent as well as principal. As an agency, he can bind other partners by his act within the scope of Partnership Agreement and as a principal to the extent that he is bound by the acts of other partners, every partner is liable for an act of the firm. He thus adopts the argument advanced in the case of Sham Sundar (supra). Section 9 and 12 of the Indian Partnership Act, 1932 is quoted below: “9. General duties of partners.--- Partners are bound to carry on the business of the firm to the greatest common advantage, to be just and faithful to each other, and to render true accounts and full information of all things affecting the firm to any partner or his legal representative. 12. The conduct of the business.----Subject to contract between the partners,--- (a) every partner has a right to take part in the conduct of the business; (b) every partner is bound to attend diligently to his duties in the conduct of the business; (c) any difference arising as to ordinary matters connected with the business may be decided by a majority of the partners, and every partner shall have the right to express his opinion before the matter is decided, but no change may be made in the nature of the business without the consent of all the partners; and (d) every partner has a right to have access to and to inspect and copy any of the books of the firm.” However, I find that such an argument was turned down in the aforesaid case in paragraph 8 which is quoted below and hence it has to be rejected at the threshold: “8. But we are concerned with a criminal liability under penal provision and not a civil liability. The penal provision must be strictly construed in the first place. Secondly, there is no vicarious liability in criminal law unless the statute takes that also within its fold. Section 10 does not provide for such liability. But we are concerned with a criminal liability under penal provision and not a civil liability. The penal provision must be strictly construed in the first place. Secondly, there is no vicarious liability in criminal law unless the statute takes that also within its fold. Section 10 does not provide for such liability. It does not make all the partners liable for the offence whether they do business or not.” The counsel for the Economic Offence Unit further submits that there was an exception carved out in the case of Aneeta Hada (supra) at paragraph 37 wherein it was held “Needless to emphasize, the matter would stand on a different footing where there is some legal impediment and the doctrine of lex non cogit ad impossibilia (law does not compel to do the impossible) gets attracted”. [Interpreted in English my me] However, in my understanding, there would be no legal impediment in arraying a partnership firm an accused on account of its constitution, and nature of duties of each of its partner, since the onus foremost in a criminal prosecution would be to identify as to which partner was responsible for conduct of actual business as required under Section 34 of the Drugs and Cosmetics Act. To elaborate my point, Section 34 is quoted below: “34. Offences by companies.—(1) Where an offence under this Act has been committed by 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 such person liable to any punishment provided in this Act if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence. (2) Notwithstanding anything contained in sub-section (1), where an 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 a 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. [Underlining mine] Thus, we find that Section 34 mandates identification of “every person”. Further, if one sees the explanation appended to Section 34 quoted above, one finds that the company has been explained to mean a body corporate, and includes a firm or other association of individuals; and “director” in relation to a firm means a partner in the firm which automatically means that the word “firm” or “other association of individuals” is to be substituted wherever the word “company” is used in Section 34 of the Drugs and Cosmetics Act and “partner” wherever the word “director” is used. In view of the discussions above, submission of the Petitioners is fit to be accepted and therefore, I have no option but to set aside the order of cognizance on the aforesaid technical grounds. Accordingly, the order of cognizance dated 12.09.2013 passed by the Sub-Divisional Judicial Magistrate, Patna, in Special Case No.16 of 2012 arising out of Economic Offences P.S. Case No.05 of 2012 as also in Special Case No. 17 of 2012 arising out of Economic Offence P.S. Case No.06 of 2012 are hereby set aside. However, since the unscrupulous acts enumerated in the Complaint Petitions involves risk to public health which may affect a large number of persons, I would give liberty to the prosecution to initiate a fresh prosecution in accordance with law in which the quashment of the present proceeding shall not act as an impediment. The applications stand allowed with the aforesaid observation.