Case Details: Dilip Hariramani vs. Bank of Baroda (Criminal Appeal No. 767 of 2022)

Court: The Supreme Court of India

Rationes:

1. A director or partner cannot be held vicariously liable for a criminal offence under Section 138 of Negotiable Instrument Act, 1881 merely because of being a director or partner of the company or firm, unless the company or firm is (i) made an accused in the criminal proceedings, and (ii) proven to have committed the offence of cheque bouncing as the principal accused,

2. Vicarious liability of a director or a partner arises only if the director or the partner have been directly involved in the day to day running of the business and the offense is committed with the consent, connivance, or is attributable to the neglect by the said director or partner of the company or firm.

Judgment date:  May 9, 2022

Act/Law:  Negotiable Instrument Act, 1881 ('NI Act')

Factual Matrix:

  • Bank of Baroda ('Respondent') granted a term loan and cash credit facility to a partnership firm i.e., Global Packaging ('Firm') on October 4, 2012 for Rs. 6,73,80,000/- (Rupees Six Crore Seventy Three Lakh and Eighty Thousand). It was alleged that for part repayment of the loan, the Firm acting through its authorised signatory i.e., Simaiya Hariramani had issued three cheques of Rs. 25,00,000/- (Rupees Twenty Five Lakh) each on October 17, 2015, October 27, 2015 and October 31, 2015. The cheques were dishonored upon presentation with the remark 'funds insufficient';
  • On November 4, 2015, the Respondent issued a demand notice to only Simaiya Hariramani and not to the Firm under Section 138 of NI Act. On December 7, 2015 the Respondent filed a complaint against Simaiya Hariramani and Dilip Hariramani ('Appellant') under Section 138 NI Act before the Court of Judicial Magistrate, Balodabazar, Chhattisgarh. The Firm was not made an accused in the complaint;
  • Upon cross examination, the Bank Manager admitted to the fact that the demand notice under Section 138 of NI Act was not issued to the Firm and that no loan had been obtained by Appellant or Simaiya Hariramani in their individual capacity;
  • On February 19, 2019, the Court of Judicial Magistrate, Balodabazar, Chhattisgarh convicted the Appellant and Simaiya Hariramani under Section 138 of NI Act and sentenced imprisonment and payment of Rs. 97,50,000/- (Rupees Ninety Seven Lakhs and Fifty Thousand) as compensation. An appeal was preferred by the Appellant and Simaiya challenging the conviction passed by the Judicial Magistrate, the appeal was dismissed by the Sessions Judge, Belodabazar, Chhattisgarh on November 21, 2019;
  • The Appellant and Simaiya Hariramani challenged the judgment of the Sessions Judge before the Hon'ble High Court of Chhattisgarh. The said challenge was dismissed by the High Court vide impugned judgment dated October 12, 2020;
  • Aggrieved by the decision of the Hon'ble High Court of Chhattisgarh dated October 12, 2020, the Appellant filed an appeal before the Hon'ble Supreme Court.

Upon consideration, the Hon'ble Supreme Court of India pronounced a detailed judgment on May 9, 2022, setting aside the conviction of the accused partners of the firm with the rationes/decision as stated above.

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