Tax Management India. Com
Law and Practice  :  Digital eBook
Research is most exciting & rewarding


  TMI - Tax Management India. Com
Follow us:
  Facebook   Twitter   Linkedin   Telegram

TMI Blog

Home

2017 (2) TMI 178

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... QUASHING & SET ASIDE FIR/ORDER) NO. 11911 of 2015 - - - Dated:- 2-2-2017 - MR. J.B.PARDIWALA, J. FOR THE APPLICANT : MR AR GUPTA, ADVOCATE, ADITYA A GUPTA, ADVOCATE FOR THE RESPONDENT : DARSHAN M VARANDANI, ADVOCATE, MS SHRUTI PATHAK, APP ORAL ORDER RULE returnable forthwith. Ms.Pathak, the learned APP waives service of notice of rule for and on behalf of the respondent State of Gujarat. Mr.Darshan Varandani, the learned counsel waives service of notice of rule for and on behalf of the respondent original complainant. By this application under Section 482 of the Code of Criminal Procedure, 1973, the applicant original accused seeks to invoke the inherent powers of this Court, praying for quashing of the proceedings of the Criminal Case No.1834 of 2014 pending before the learned Chief Judicial Magistrate at Bhuj, for the offence punishable under Section 138 of the Negotiable Instruments Act. The applicant herein is one of the partners of a partnership firm running in the name of Varsani Construction Company. One another partner of the firm and an authorized signatory, namely, Rajeshbhai Varsani, issued a cheque of the amount of ₹ 1 lac dated 2 .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... her persons vicariously liable for commission of an offence on the part of the company. As has been stated by us earlier, the vicarious liability gets attracted when the condition precedent laid down in Section 141 of the Act stands satisfied. There can be no dispute that as the liability is penal in nature, a strict construction of the provision would be necessitous and, in a way, the warrant. 58. Applying the doctrine of strict construction, we are of the considered opinion that commission of offence by the company is an express condition precedent to attract the vicarious liability of others. Thus, the words as well as the company appearing in the Section make it absolutely unmistakably clear that when the company can be prosecuted, then only the persons mentioned in the other categories could be vicariously liable for the offence subject to the averments in the petition and proof thereof. One cannot be oblivious of the fact that the company is a juristic person and it has its own respectability. If a finding is recorded against it, it would create a concavity in its reputation. There can be situations when the corporate reputation is affected when a director is indicted .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... f. It was further observed that the other categories of offenders like directors or partners of the firm can only be brought in the dragnet on the touchstone of vicarious liability as the same has been stipulated in the provision itself. Thus, the Supreme Court has arrived at an irresistible conclusion that for maintaining the prosecution under Section 141 of the Negotiable Instruments Act, arraigning of the company as an accused is imperative, mainly on the basis of the vicarious liability of the directors of the company and not necessarily because the company is a juristic person and it has its own respectability. That was an additional circumstance considered by the Apex Court while holding that arraigning of a company as an accused is imperative, but the main basis for arriving at its conclusion was the vicarious liability which the directors or partners of the firm can have towards the company and hence without joining the company on the touchstone of vicarious liability they cannot be prosecuted. Therefore, the ratio laid down in the case of Aneeta Hada (supra) can be made equally applicable in the case of a partnership firm also. The partners are liable and sued in the .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... Ismailji Sadikot v. State of Gujarat and others, (2016)3 GLR 1991. I may quote the relevant observations as under : 9 Before I proceed to answer the first question, let me look into the decisions relied upon by the learned counsel in that regard. In Munshi Ram (supra) , the appellants before the Supreme Court were partners of a firm, Bharat Industries, Chheharta. By a Notification, 15th May, 1946, the Chheharta Municipal Committee levied a profession tax under Section 61(1)(b) of the Punjab Municipal Act, 1911. The appellants filed a suit for permanent injunction restraining the defendant committee from realizing the profession tax demanded by it. The appellants challenged the validity of the assessment contending that construed in light of the definition given in Section 2(40) of the Punjab General Clauses Act, the term person occurring in Section 6(1)(b) of the Punjab Municipal Act, 1911, included a firm and since the trade carried on by the firm was one, the tax could be levied on the firm, and not on the partners individually. On such premises, it was pleaded that the Municipal Committee in levying the tax on the individual partners had exceeded its statutory powers under .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... second condition? That is to say, do such persons carry on any trade or calling in the municipality within the contemplation of clause (b)? 18. 'Partnership' as defined in Section 4 of the Indian Partnership Act, 1932, is the relation between persons who have agreed to share the profits of a business carried on by all or any of them for the benefit of all. The section further makes it clear that a firm or partnership is not a legal entity separate and distinct from the partners. Firm is only a compendious description of the individuals who compose the firm. The crucial words in the definition of 'partnership' are those that have been underlined. They hold the key to the question posed above. They show that the business is carried on by all or any of the partners. In the instant case, admittedly, all the plaintiff-appellants are carrying on the business in partnership. All the six partners are sharing the profits and losses. All the partners are jointly and severally responsible for the liabilities incurred or obligations incurred in the course of the business. Each partner is considered an agent of the other. This being the position, it is not possible to .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... crucial question, therefore, is whether the appellant is the owner of the machinery and plant in the relevant assessment year 1962-63. Acquisition of ownership is a condition precedent to avail of the development rebate under S. 33(1) of the Act.It is now fairly clear from the statement of facts that the old and the new partnership firms are separately registered under the Act and the old one was doing its business at Calcutta and the new one at Purnea. They have been separately being assessed as independent assessable entities. Only the new firm alone was reconstituted consisting of the two partners of the old firm M/s. Prayagchand Hanumanmal and Periwal and Co. (P.) Ltd. Prayagchand and Hanumanmal individually are entitled to 25 per cent shares each for the profits in the appellant firm and Periwal and Co. (P.) Ltd. has 50 per cent shares of profit. Under the Indian Partnership Act, '1932 the partnership firm registered thereunder is neither a person nor a legal entity. It is merely a-collective name for the individual members of the partnership. A firm as such cannot be a partner in another firm though its partners may be partners in another firm in their individual capacit .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... . The Letters Patent Appeal before the Division Bench was also dismissed. The Comptroller and Auditor General preferred an appeal before the Supreme Court. The Supreme Court, while dismissing the appeal, observed in para 9 as under: 9. The appellant insists that it is only a smaller group of Chartered Accountants firms that would be eligible for being brought on the panel for audit of public sector undertakings or Government concerns. The audit work of public sector undertaking, no doubt, is to be done by the qualified and efficient Chartered Accountants. Once a person is qualified, experienced and efficient, it is difficult to understand how he could be discriminated against only for the reason that he has chosen to act alone in the professional career and has not been able to form a partnership firm. The efficiency, as pointed out by the High Court, springs from the personal experience, proficiency and personal capacities. It is, therefore, not possible to link these characteristics and professional acumen to a person or persons in a firm alone. A single individual as an auditor in a proprietary concern can have such characteristics and professional acumen by himself and al .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... suit filed before the Bombay City Civil Court instituted by the appellant praying for dissolution of an unregistered partnership firm between the appellant and the respondent. In that suit, a defence was taken that the suit was not maintainable in view of Sub-section (2A) of Section 69 of the Indian Partnership Act, 1932. The Bombay City Civil Court took the view that Sub-section (2A), which was introduced by the Maharastra Amendment to Section 69 of the Act, was unconstitutional being violative of Articles 14 and 19(1) (g) of the Constitution of India. The Bombay City Civil Court made a reference in that regard to the High Court under Section 113 of the Code of Civil Procedure. The High Court, held that Sub-section (2A) of Section 69 was not unconstitutional. The appeal came up before the Supreme Court. After noticing Section 69(1) and (2) of the Partnership Act as well as Sub-section (2A) introduced by the Maharashtra Amendment 1984, the Court observed in paras 14 and 17 as under: 14. It may be mentioned that a partnership firm, unlike a company registered under the Indian Companies Act, is not a distinct legal entity, and is only a compendium of its partners. Even the reg .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ding anything contained in subsection (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 corporation and includes a firm or other association of individuals; and (b) director , in relation to a firm, means a partner in the firm. 16 Sub-section (1) of Section 141 of the Act provides that if a person committing an offence under the section is a company, every person who, at the time 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. The offender in section 138 of the Act is the drawe .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ession company as used in Sub-clause (a) of the explanation appended to Section 141 of the Act shows that it is an inclusive of any body corporate or other association of individuals. Though the heading of Section 141 of the Act reads offences by companies; according to the explanation to that Section, company means any body corporate and includes a firm or other association of individuals and director, in relation to a firm means a partner in the firm. The term other association of individuals should not be understood to refer even to informal understanding between the individuals. It has to be understood in the context of body corporate and partnership firms. The principal of ejusdem generis gets attracted in such a case. Therefore, a sole proprietary concern is not a company within the meaning of company as defined under the explanation to Section 141 of the Act. 19 The Explanation to Section 141 makes it clear that wherever there is a reference under Section 141 to a company it has to be substituted by the word firm where the accused is a partnership firm and the provision has to be read as if it refers to the firm. What this means is that a complaint can be filed for the .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... arly from the provisions of the section. The proper function of an explanation is to make plain or elucidate what is enacted in the substantive provision and not to add or subtract from it. Thus an explanation does not either restrict or extend the enacting part; it does not enlarge or narrow down the scope of the original section that it is supposed to explain.......... The Explanation must be interpreted according to its own tenor; that it is meant to explain and not vice versa . 23 Bindra in 'Interpretation of Statutes' (5th Edn.) at page 67 states thus : An explanation does not enlarge the scope of the original section that it is supposed to explain. It is axiomatic that an explanation only explains and does not expand or add to the scope of the original section.... The purpose of an explanation is, however, not to limit the scope of the main provision.... The construction of the explanation must depend upon its terms, and no theory of its purpose can be entertained unless it is to be inferred from the language used. An 'explanation' must be interpreted according to its own tenor. 24 The principles laid down by the aforesaid authors are full .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... (d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and (e) it cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same. The first question is answered accordingly in the affirmative. At this stage, Mr.Varandani, the learned counsel appearing for the complainant invited my attention to a decision of the Supreme Court in the case of Charanjit Pal Jindal v. L.N.Metalics, (2015)15 SCC 768, wherein the Court observed in para 13 as under : 13. However, it will be open for the complainant to move before the court of competent jurisdiction for appropriate relief and may file a petition under Section 14 of the Limitation Act, 1963 seeking exclusion of the period on the ground that the respondent was seeking remedy before the other forum. .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

 

 

 

 

Quick Updates:Latest Updates