In recent case of Dilip Hariramani v. Bank of Baroda 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 Instrument 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.

Facts:

The issues raised in this appeal by the appellant, Dilip Hariramani, challenging his conviction under Section 138 .

Section 138 deals with Dishonour of cheque for insufficiency, etc., of funds in the account.—Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both.

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 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 Held:

"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.

Thus concluding, Vicarious liability under Section 141 of the NI Act cannot be fastened upon a person merely because the civil liability under the Partnership Act fall upon the partner.