Grahadurai and others vs Subash Chandra Bose

The accused, against whom the respondent has preferred a complaint for offences u/Ss. 406, 420 and 477A I.P.C. pending before the Judicial

Magistrate, Sivakasi as SC No. 3 of 1990 invoke the inherent powers of this Court u/S. 482 Cr.P.C. to quash the above proceedings.

The allegations made in the complaint are briefly as follows : Petitioners 1, 2 and the respondent are brothers and the 3rd petitioner is the sons

of the second petitioner. They and one Ramamurthy and one A. B. Athiban are partners of the National Fire Works Factory by virtue of a

partnershipdeed dated 24-3-1983, the principal place of business being No. 74/1, Police Station Road, Sivakasi. The above National Fire Works

Factory consists of several units numbering 32 as mentioned in the complaint. The first petitioner being the eldest of the partners had been

managing the day-to-day administration of the fire and was carrying on all the business transactions for and on behalf of the partners. Under a

special agreement, he was entrusted with this administration and was having dominion over all the movable and immovable properties of the firm.

Petitioners 2 and 3 were actively assisting him, while the other partners were excluded from he management of the firm. The respondent later

learned that the petitioners had removed part of the finished goods and raw materials from the firm''s godown to unauthorised places, transferred

funds to their individual accounts and discounted the firm''s bills, hundies in the name of the companies individually owned by them or their relatives.

They had converted the finished goods and raw materials of the firm to their own use by obtaining bank drafts in their personal names. To facilitate

this wrongful gain, they had made false entries in the books of accounts. The other partners had been cheated by the fraudulent acts of the

petitioners. The petitioners, therefore, had committed offences u/Ss. 406, 420 and 477A I.P.C.

On receipt of the complaint, the learned Magistrate had taken the sworn statement of the complainant respondent, who also produced the other

partner Ramamurthy, whose statement was also recorded. That learned Magistrate chose to conduct an enquiry u/S. 202 Cr.P.C. and ordered the

production of certain documents relating to the accounts of the firm, bank records and finally, considering the materials then available before him,

took the complaint on file for the above offences and issued process to the petitioners, who have invoked the inherent powers of this Court to

qaush the proceedings.

Thiru N. T. Vanamamalai, learned Senior Counsel for the petitioners would urge that since the complaint proceeded on the allegation that the

first petitioner had been managing the day-to-day administration of the firm, being the eldest of the partners and had been assisted by petitioners 2

and 3, all the petitioners being partners, could not in law commit an offence u/S. 406 I.P.C. with reference to partnership assets. According to the

learned counsel, each partner would be in possession of partnership assets on his own behalf, as well as on behalf of the other partners, under

which circumstance, anyone of the partner cannot be said to be holding the partnership properties in a fiduciary capacity on behalf of the other

partners, consequently ruling out, offence u/s 406 I.P.C. with reference to partnership properties. The learned counsel would also contend that any

grievance of a partner against the other Partners relating to partnership assets, had only to be resolved in a civil forum and in the instant case, the

respondent had in fact filed a civil suit for dissolution of the partnership and rendition of accounts, in which suit, a preliminary decree has been

passed. Referring to certain documents produced in a typed set by the respondent, the learned counsel would contend that even those documents

showed that the benefit of non-disclosure of the income to the Income Tax Authorities, had been apportioned among the various partners,

according to their interest in the partnership and as such the criminal complaint was misconceived. The learned counsel referred to certain decisions

which I shall discuss later.

Per contra, Mrs. Nalini Chidambaram, learned counsel for the respondent would contend, on the basis of certain decision, that while normally

an individual partner is not liable for an offence u/S. 406 I.P.C. in respect of partnership assets, there would be an exception in cases where, a

particular partner gets dominion over the partnership assets, by virtue of entrustment based on a special arrangement between the partners, in

which case, he would be holding the partnership assets in a fiduciary capacity on behalf of the other partners and would expose himself to a charge

u/S. 406 I.P.C. if he misappropriated the assets so held by him. In the instant case, according to the learned counsel, as a special arrangement had

been averred in the complaint and had been spoken to by the respondent in his sworn statement as well as by the co-partner Ramamurthy in the

statement recorded from him by the trial Court, this Court at this stage cannot go behind those materials and the respondent-complainant ought to

be enabled to prove his case in the trial.

The restricted nature of the powers of this Court u/S. 482 Cr.P.C. in a situation such as this, is well settled. The Supreme Court had all along

clearly laid down that courts should be reluctant to stifle a prosecution at the threshold without even giving an opportunity to the complainant to

prove his case. The power u/S. 482 has to be resorted to only to prevent an abuse of the process of the Criminal Court when on the allegations

made in the complaint and on the other materials made available to the learned Magistrate, taken by their face value, without adding or

substracting, no offence is made out. If however, ingredients of the offence are found mentioned in the complaint or in the papers accompanying it,

the prosecution cannot be entitled by recording to the inherent powers. Matters as to whether the evidence could be true or not, sufficient or

insufficient, are beyond the purview of this Court at this stage. Reference need only be made to Municipal Corporation of Delhi Vs. Ram Kishan

Rohtagi and Others, and State of Bihar Vs. Murad Ali Khan and Others, .

The question as to whether a partner could commit an offence under S. 406, I.P.C. in relation to partnership propety, is no longer res integra. It

was mooted out by a Full Bench of the Calcutta High Court in Bhuban Mohan Das Vs. Surendra Mohan Das, . Therein it was held that in ordinary

cases, where a partner receive or holds the property of a partnership firm he does not hold it in a fiduciary capacity and is not entrusted with the

property or dominion over it so as to be liable for an offence under S. 406, I.P.C. where however a partner receives or holds partnership property

under a special agreement made between the partners, that partner is entrusted with the property and gets dominion over it, holding it in a fiduciary

capacity and if he commits misappropriation of the same, he would be liable for an offence under S. 406, I.P.C.

The Supreme Court in Velji Raghavji Patel Vs. State of Maharashtra, , when this question came up before it, for decision, discussed the

different judgments of various courts and finally approved of the view expressed by the Full Bench of the Calcutta High Court referred above and

held that every partner gets dominion over the property by reason of the fact that he is a partner but that this is not the kind of dominion which

satisfies the requirement of S. 405, I.P.C. In order to establish entrustment or dominion over property, it must be shown that the dominion was as

a result of entrustment. The prosecution establish that dominion over the assets or a particular asset of the partnership, was by a special agreement

between the parties, entrusted to the accused person. In the absence of any such special agreement, a partner, who receives money belonging to

the partnership cannot be said to have received it in a fiduciary capacity and he is not entrusted with dominion over partnership properties. In the

former case, there could be an offence under S. 406, I.P.C. while in the latter case, there could be no such offence.

A learned Judge of this Court in K. V. Subbiah v. Chalapathi Rao, 1971 MLW 13, following the above decision of the Supreme Court and

finding that the complaint in the case before him referred to a special agreement followed by a breach of the condition of this agreement, set aside

the order of discharge passed by the learned Magistrate under S. 253(2) of the old Code. (The present Code S. 245(2).)

Similarly, another learned Judge of this Court in H. V. Bany v. The State, 1989 CLJ 667, finding that no special arrangement between the

parties, hereby the accused partner was entrusted with the partnership property had been pleaded in the complaint and there being no other

material to show the existence of any such special arrangement, quashed the prosecution by one partner against another partner and another, for

offences under Ss. 408 an 408 read with S. 34, I.P.C. in respect of partnership assets.

It follows from the above decisions that when any one of the part hers gets dominion over partnership property, merely in his capacity as a

partner. Such dominion not being preceded by any entrustment cannot attract S. 406, I.P.C. This is so because, the partnership assets belong to

the partnership and all the partners have right over the same. Any one partner holds it on his own behalf and on behalf of the co-partners. He does

not hold it in a fiduciary capacity on behalf of the other partners. The property said to have been appropriated, is as much his as that of the other

co-partners. The share of a partner in partnership assets cannot be predicted until amounts are taken, when it could even turn out, that the partner

who holds the properties, is entitled to all the assets of the partnership and the partnership may still owe him money. On the other hand, if a partner

gets dominion over the partnership property following a special arrangement between the partners, such dominion is consequent to an entrustment

by the other partner of partnership property to that partner, who holds it in a fiduciary capacity on behalf of the other partners, and any

misappropriation of those assets would attract the provision of S. 406, I.P.C.

In the instant case, though it is stated that the first petitioner being the eldest of the partners was managing the day-to-day administration of the

firm, it is also stated

Thus A. 1 Girahadurai was entrusted with the administration of the firm under a special arrangement and he was and is having dominion over all

the movable and immovable properties of the firm. A. 2 Vairaprakasham and A. 3 Kodeswaran were and are actively assisting A. 1 Girahadurai.

Similarly, in the sworn statement of the respondent/complainant, he has stated that the family had 16 companies and 4 limited companies and

that there was a special arrangement among the brothers that each one of these should be specifically entrusted with the administration of certain

firms, having dominion over the properties of those firms and he, the respondent was looking after 4 companies, his brother Ramamurthy, 2

companies and a private limited company and the first petitioner the National Fire Works Factory. The respondent has also stated that pursuant to

a special oral arrangement, the entire assets of the National Fire Works Factory, including raw materials finished product and accounts, had been

entrusted to the petitioner and they received the same.

Similarly, the other partner Ramamurthy examined as P.W. 2, has also stated that the family has 16 partnership companies and 4 limited

companies and they had a special agreement and according to the agreement, each brother was entrusted with 4 partnership companies and one

limited company and the National Fire Works Factory was entrusted to the first petitioner, assisted by petitioners 2 and 3.

14A. When a special agreement has been pleaded in the complaint and spoken to by the complainant/respondent as well as his witness P.W. 2,

there was material enough for the learned Magistrate to take the complaint on file for an offence under S. 406, I.P.C. Though an additional typed

set containing several documents were filed in this Court on behalf of the respondents, in view of the fact that these documents were not before the

trial Court, the same will have to eschewed from considerations. The question has to be decided on the material available before the learned

Magistrate when he took cognisance, of the Code under S. 204, Cr.P.C. The fact that a civil suit has been filed for dissolution of the partnership

and for rendition of accounts, would have no bearing on the legal issue involved, since, when different reliefs are available in different forums, it is

always for the party to decide upon the reliefs he, would choose to seek. The consideration of this Court at this stage, is limited to finding out of the

penal provisions are attracted.

Though reference was made by both the Counsel the decision by the Supreme Court in R.K. Dalmia Vs. Delhi Administration, , it is needless

to refer to the same since the question involved therein was only whether the Chairman of the Board of Directors and a Secretary-cum-Chief

Accountant of the Insurance Company, could be said to be entrusted with dominion over the funds of the Insurance Company. It is only in the

discussion that a passing mention is made, in paragraphs 81 and 82 of the Judgment, to the question whether a partner entrusted with the dominion

over partnership property could commit an offence under S. 406, I.P.C. Nor would the decision of a learned single Judge of the Calcutta High

Court, relied on by the learned senior counsel for the petitioners, Mahal Chand Bikwal v. State of West Bengal, 1987 CLJ 1569 (Cal)help the

petitioners, since in that decision, the question of a special agreement never came up for consideration and the Court held that there could be no

charge under S. 403, I.P.C. against a partner, in respect of partnership assets, until andunless, after dissolution of the partnership it is found that

any sum was due from one partner to another.

It is for the trial Court to appreciate the evidence relating to the special agreement put forward by the respondent and his witness. The legal

requirement having been fulfilled, this Court has no option but to dismiss this petition. It is however made clear, that any observation touching the

merits of the case made by this Court in this order, has been made for deciding the legal issue raised and would have no bearing on the

appreciation of the evidence by the trial Court. With these observation, this petition is dismissed.

Petition dismissed.