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PETITIONER: SHAM SUNDAR & ORS.

       Vs.

RESPONDENT: STATE OF HARYANA

DATE OF JUDGMENT21/08/1989

BENCH: SHETTY, K.J. (J) BENCH: SHETTY, K.J. (J) PANDIAN, S.R. (J)

CITATION:  1989 AIR 1982            1989 SCR  (3) 886  1989 SCC  (4) 630        JT 1989 (3)   523  1989 SCALE  (2)446

ACT:     Haryana Rice Procurement (Levy) Order, 1979:  Contraven- tion   of   by   partnership   firm--Prosecution   of    all partners--Maintainability of.     Essential Commodities Act, 1955: ss. 7 &  10--Contraven- tion  of  Haryana  Rice Procurement (Levy)  Order,  1979  by partnership firm-Liability for--Held, no vicarious liability in criminal law unless statute so specifies.

HEADNOTE:     The short supply of levy rice to the State Government by licensed  millers  is a contravention of  the  Haryana  Rice Procurement (Levy) Order, 1979 made under s. 3 of the Essen- tial  Commodities Act, 1955. The said contravention is  pun- ishable  under s. 7 of the Act. Under s. 10(1) of the Act  a person  is deemed to be guilty of contravention of  such  an order,  if  he was in charge of and was responsible  to  the company  for the conduct of its business. Under the  proviso thereto, a person is, however, not liable to any  punishment if  he proves that the contravention took place without  his knowledge or that he exercised all due diligence to  prevent such contravention. Under explanation (a) to the section the term  "company"  includes  a firm or  other  association  of individuals.     The appellants, partners of a firm running a rice  mill, were  convicted for contravention of the provisions  of  the procurement  order read with s. 7 of the Act, and  sentenced to rigorous imprisonment and fine. The High Court  confirmed the conviction and sentence.     In  this appeal by special leave, it was  contended  for the  appellants  that there was no evidence adduced  by  the prosecution that they were in charge of the business of  the firm  when the offence was committed and in the  absence  of any such evidence the conviction could not be sustained. Partly allowing the appeal, 887     HELD: 1. There is no vicarious liability in criminal law unless the statute takes that also within its fold.  Section 10  of  the Essential Commodities Act does not  provide  for such liability. It does not make all the partners liable for the offence whether they do business or not. [890C]

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   2.1  The obligation for the accused to prove  under  the proviso to s. 10(1) 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-s. 1 that  the partner was responsible for carrying on the business and was during  the  relevant  time in charge of  the  business,  is satisfied. [890E]     2.2 In the instant case PW 1 had deposed that the state- ment regarding purchase of paddy and supply of levy rice was signed by appellant No. 3 as partner on behalf of the  firm. There is no other evidence on record to indicate that  other partners were also conducting the business of the firm  when the offence was committed. [890G-891A]     The  conviction  and sentence of appellant  No.  3  are, therefore, maintained. The conviction and sentence of appel- lant Nos. 1, 2 and 4 are set aside. They are acquitted  from all the charges. [891C]

JUDGMENT:     CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No. 524 of 1989.     From  the  Judgment  and Order dated  25.5.1989  of  the Punjab and Haryana High Court in Criminal Appeal No. 175  of 1986.       M.C.  Bhandare,  (N.P.) and Gopal K.  Bansal  for  the Appellants.       Mahabir Singh for the Respondent.       The Judgment of the Court was delivered by     K.  JAGANNATHA  SHETTY, J. We grant  special  leave  and proceed to dispose of this appeal.     On  June  28, 1980 the appellants formed  a  partnership firm for the purpose of running a rice mill in the name  and style of M/s Panna Lal Prem Nath Rice Mills at Shahput. They have been convicted by the Presiding Officer of the  Special Court,  Karnal by judgment dated March 10, 1986 for  contra- vention of the provisions of the Haryana 888 Rice Procurement (Levy) Order, 1979, read with section 7  of the  Essential Commodities Act. They were sentenced  to  six months’  rigorous imprisonment and a fine of Rs.2,000  each. The  High  Court of Punjab and Haryana  has  confirmed  that conviction and sentence.    They now appeal against conviction.     The  facts which gave rise to the charge, in so  far  as material,  were  these:  In 1984, the  firm  purchased  5373 quintals  69 kgs. and 400 gms of common paddy from the  mar- ket. By the rate of conversion of paddy into rice an average 3582.49 quintals of rice should have been obtained from that much of quantity of paddy. As per levy rules the firm  ought to have supplied 3224.21 quintals of rice to the  Government but  the firm failed to supply it. Instead it supplied  only 15  10  quintals of rice. There was thus a short  supply  of 1714.17 quintals of levy rice to the Government. On  another occasion  the firm purchased 2353.79 quintals  of  superfine paddy  out  of which 1566.62 quintals of rice could  be  ob- tained.  From  that,  the firm gave  the  Government  933.89 quintals  of  rice as against 1174.96 quintals.  Here  again there  was  a short supply of 241.07 quintals  of  superfine levy rice.     The short supply of levy rice is a contravention of  the Haryana  Rice Procurement (Levy) Order 1979  and  punishable under  section 7 of the Essential Commodities Act.  All  the

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partners  of the firm were charge-sheeted and put  to  trial for the said offence. They were also convicted and sentenced as earlier stated.     Counsel  for the appellants urged that there is no  evi- dence adduced by the prosecution that the appellants were in charge  of  the business of the firm when  the  offence  was committed  and in the absence of any such evidence the  con- viction  could not be sustained. Counsel rested his  submis- sion on the text of section 10 of the Essential  Commodities Act. This section provides:               "10. Offences by companies--(1) If the  person               contravening an order made under section 3  is               a  company, every person who, at the  time  of               contravention 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 contravention and shall be liable to be               proceeded against and punished accordingly:               889                        Provided  that nothing  contained  in               this sub-section render any such person liable               to  any punishment if he proves that the  con-               travention took place without his knowledge or               that he exercised all due diligence to prevent               such contravention.                        (2)  Notwithstanding  anything   con-               tained .in sub-section where an offence  under               this  Act has been committed by a company  and               it is proved that the offence has been commit-               ted  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,  manag-               er,  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  corporate,  and               includes a firm or other association of  indi-               viduals, and               (b) "director"--in relation to a firm means  a               partner in the firm.     From explanation to section 10 it will be seen that  the company  includes a firm and other association  of  persons. Section  10 provides that the person shall be deemed  to  be guilty of contravention of an order made under section 3  if he  was incharge of and was responsible to the firm for  the conduct  of the business of the firm. What is of  importance to  note  is,  that the person who was  entrusted  with  the business of the firm and was responsible to the firm for the conduct  of the business, could alone be prosecuted for  the offence complained of.     Counsel  for the State, however, relied upon  the  legal liability of partners and he argued that it would be for the accused  partners  to prove that the offence  was  committed without their knowledge or in spite of exercising due  dili- gence  on  their part. He relied upon the  proviso  to  sub- section  (1)  of sec. 10. It is true that under  the  Indian Partnership  Act, 1932, a ’firm’ or ’partnership’ is  not  a legal entity but is merely an association of persons  agreed to  carry  on  business. It is only a  collective  name  for individuals, carrying on business in partnership. The essen-

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tial  characteristic  of a firm is that each  partner  is  a representative of other partners. Each of the partners is an agent as 890 well as a principal. He is an agent in so far as he can bind the  other  partners  by his acts within the  scope  of  the partnership agreement. He is a principal to the extent  that he is bound by acts of other partners. In fact every partner is liable for an act of the firm. Section 2(a) of the  Part- nership  Act defines an "act of a firm" to mean 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.     But  we  are concerned with a criminal  liability  under penal provision and not a civil liability. The penal  provi- sion must be  strictly construed in the first place. Second- ly,  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.     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 benefits  of  partner- ship.  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  men- tioned  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  part- ner could be convicted. We, therefore, reject the contention urged by counsel for the State.     We have perused the evidence of the prosecution. Santlal Inspector,  Food and Civil Supplies (PW 1) has deposed  that the  accused were partners of the firm. He has  stated  that the  statement  Ex.  P. 8 regarding purchase  of  paddy  and supply  of levy rice was signed by Lajpat Rai as partner  on behalf of the firm. The rest of his statement relates to the short  supply  of levy rice, and it does not  indicate  that other partners were also conducting the business during  the relevant  time. The statement of PW-3 who  investigated  the case  does not indicate anything further. He has seized  the relevant docu- 891 ments like stock register and recovery memo and arrested all the  four  accused.  These documents do  not  indicate  even remotely  that all the partners were doing the  business  of the  firm.  There  is no other evidence on  record  on  this aspect.  With these tit-bits, it is impossible to hold  that when  the offence was committed all the partners  were  con- ducting  the business of the firm. However, Lajpat  Rai  ac- cused  No.  3 cannot escape the liability. The  material  on record indicates that he was conducting the business of  the firm  and in fact, he has signed the statement Ex. P.  8  on

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behalf  of  the  firm. His conviction  cannot  therefore  be disturbed. But the conviction of other partners is absolute- ly uncalled for.     In the result we allow the appeal, set aside the convic- tion  and sentence of appellant Nos. 1, 2 and 4  and  acquit them  from all the charges. The conviction and  sentence  of appellant No. 3, however, are maintained. P.S.S.                                  Appeal allowed. 892