Vidyadhar and Others vs Shushkala and Another

Palok Basu, J.—The question involved in the present case is can a firm''s partner prosecute another partner who is managing it with criminal liability punishable u/s 406 IPC if the farmer�s profit as is shown in the balance sheet of the firm drawn by the latter is not disbursed to her inspite of notice of demand?

Smt. Shushkala, opposite party No. 2, was partner of a firm M/s Sri Durga Das Mill situated in Mohalla Mahabirgani Auraiya Etawah, along with Vidyadhar, Padam Dev Gupta, Smt. Sarla Porwal and Smt. Majesh Lata, floated on 15-3-1982. The Partnership deed was registered on 22-3-1982 according to which the share of Smt. Shushkala was 30%, while that of the other four partners was 10%, 25%, 20% and 15% respectively, on 30-6-84 the profit payable to Smt. Shushkala came to Rs. 48, 585.88 but only 2465.00 were paid by the other partners to Smt. Shushkala which figures were admittedly shown in the balance sheet. Inspite of oral demands and a legal notice, the other partners did not pay the said balance amount. It was stated in the notice that those four have misappropriated the share of Smt. Shushkala, so much so that they have floated another firm. The above noted allegations are the sum and substance of a criminal complaint filed on 15-12 1988 by Smt. Shushkala against Vidyadhar and three other partners named above Smt. Shushkala examined herself u/s 200 Code of Criminal Procedure and examined Balkrishna Sharma and Shyambabu u/s 202 Code of Criminal Procedure. Copies of the partnership deed, the balance sheet, the partnership Capital register dated 28-8-85 and of the notice dated 22-1-88 were filed along with the complaint The Magistrate by his order dated 28-1-1989, after considering the statement of the complainant the witnesses and the document referred to above, summoned the four accused u/s 420 IPC. It is the said order which has been challenged in the Criminal Revision, and, the proceedings emanating on the filing of the complaint resulting in the passing of the impugned order have been challenged in the application u/s 482 Code of Criminal Procedure by those four partners.

Sri S.S. Tiwari, learned Senior Advocate, on behalf of the applicants Sri S.K.S. xena Advocate on behalf of Smt. ''Shushkala opposite party No. 1 and Sri R.P. Tripathi learned Additional Public Prosecutor have been heard at length. The two matters are being decided by this common judgment.

At the out set it may be stated here that in the complaint the offence of the accused was described as punishable u/s 406 IPC while the Magistrate has summoned them u/s 420 IPC. It goes without saying that if the facts do go to indicate prima-facie commission of an offence it will be of no material importance whether it is rightly or wrongly described in the complaint as punishable u/s 406 IPC or interpreted by the Magistrate as punishable u/s 420 IPC Prima-facie disclosure of an offence from the allegations made in the complaint has only to be examined at this stage u/s 482 Code of Criminal Procedure. If there appears any error in applying the correct Section of the relevant law, it may be corrected after the accused appears and the stage to frame charges is reached. But since in this case, a revision has been filed, the said error may be corrected in the exercise of criminal jurisdiction.

The main argument of Sri Tiwari has been that all the partners constituted the firm and therefore, it was not open to one partner to charge the other partners with the allegation of usurping her share. Placing reliance on the provisions contained in the Indian Partnership Act, it was strongly argued that all income remains" the property of the firm and the responsibility of a partner is only to do the business in the name of the firm, earn profit for the firm and pay it to the firm. In this connection Sri Tiwari placed strong reliance upon the case of Bhuban Mohan Das Vs. Surendra Mohan Das, , and the decision of Supreme Court in the case of Velji Raghavji Patel Vs. State of Maharashtra, and the case of Hari Prasad Chamaria Vs. Bishun Kumar Surekha and Others, . It was further argued that a civil suit had been filed by the complainant in ''forma-pauperis'' which was dismissed because the application to sue in forma pauperis was rejected hence Criminal complaint is an abuse of process of the court and the summoning order is manifestly illegal.

Sri Saxena, however, while placing reliance upon some other provisions of the Partnership Act, also relied upon the case of Velji Raghavji (Supra) and further cited case of R.K. Dalmia Vs. Delhi Administration, . He further argued that the limitation of three years for recovering the amount has already expired because the accused went on making false promises of paying the due share of profit. There was no money to pay Court fees hence the suit could not be proceeded with. Thus, the complaint should be permitted to proceed to its logical end, the summoning order should not be interfered with and if the allegations prima-facie make out offence u/s 406 IPC, the order may be corrected accordingly.

The answer to the problem in the present case depends upon the drawing of a distinction between the property of the firm and the profit of a partner thereof. It is true that initially amounts credited to the firm account will remain the firm''s property so long as the accounting is not done and the share of individual partner is not determined. Sri S.S. Tiwari has, in his arguments, ingeniously tried to equate both which does not appear to be legally sound, for the reasons appearing hereafter.

A look at the relevant provisions of the Indian Partnership Act indicates that partnership is a relation between the persons who have agreed to share the profit of a business carried on by all or any of them acting for all and when such partnership is entered into, the said persons individually become partners and collectively come to be known as a firm. Mutual rights and duties of the partners of a firm may be determined by the contract between the partners. Every partner has a right to have access to and to inspect the accounts or any other books of the firm. The partners are entitled to share equally the profits earned and shall contribute equally to the losses sustained by Ihe firm, subject to contract between the partners, (emphasis added). If a partner derives any profit for himself from any transaction of the firm or from the use of the property or business connection of the firm, he shall account for the profit and pay it to the firm.

Having thus seen broadly the rights and liabilities of the partners in a firm, the argument of Shri Tiwari that no partner can be prosecuted at the instance of another partner as such does not get any support from those provisions nor does it derive any strength from the relevant sections of the Indian Penal Code. Section 403 IPC and Section 405 IPC do not either specifically or by necessary implication exclude the case of a partner from their purview. The sections enact that any one who was having either exclusive dominion over or was entrusted with the property of another, misappropriates or embezzles the said property, offence would be committed. Therefore, where evidence on record reveals that there was a ''managing-partner'' who had dominion over the specific share of an individual partner after due accounting and who does not pay it inspite of demand and uses it by floating another firm, he can prima-facie be charged with criminal misappropriation Such segregated profit becomes exclusive property of the partner, quite distinct from the properly of the firm, which is held in trust by the managing partner who ought to have disbursed it when partners so insisted. A contrary view is likely to encourage a managing-partner to usurp the share of profit of a partner dishonestly and hope to force the latter only to file suit for its recovery which may not be possible for one reason or the other.

Before going into the factual aspects of this case, the position of the relevant case-law may be seen which appears to be rather interesting.

In Jagnnath''s case AIR 1932 Bom 57 Beaumont CJ observed : "But, in my opinion, the words of the Section (Section 405) are quite wide enough to cover the case of a partner. Where one partner is given authority by the other partners to collect moneys or property of the firm, I think that he is entrusted with dominion over that property, and if he dishonestly misappropriates it, then I think he comes within the Section." This opinion was shared by Barlee J.

In Okhoy Coomar Shaw 21 Suth WR Cr. 59, the Full Bench of the Calcutta High Court held:

We think the words of Section 405 of the Penal Code are large enough to include the case of a partner, if it be proved that he was in fact entrusted with the partnership property, or with a dominion over it, and has dishonestly misappropriated it, or converted it to his own use.

In Bhubhan Mohan Rana AIR 1951 Cal 69, another Full Bench of Calcutta High Court held that a partner cannot be charged u/s 406 IPC in respect of property belonging to him and another partner, in a prosecution initiated by the other partner, (it may be pointed out that no accounting had taken place in Bhuban''s case-supra).

In R.K. Dalmia''s case (supra) which was decided by three illustrious Judges--Hon. S.K. Das, J. Hon. K. Subba Rao, J. (as their Lordships then were), and Hon. Raghubar Dayal, J. the judgment delivered by Hon. R. Dayal J. lays down that ''directors'' are ''trustees'' of the assets which come into their hands or which are in their control. In this connection Jagarnath''s and Okhoy Coomar Shaw''s cases (supra) were cited with approval.

In Velji Raghavji''s case (supra), which was decided by two illustrious Judges--Hon R. Dayal, J. Mid Hon. J.R. Madholkar, J. the judgment delivered by Hon. Madholkar, J. lays down as under:

Upon the plain reading of Section 405 IPC it is obvious that before a person can be said to have committed criminal breach of trust it must be established that he was either entrusted with or entrusted with the dominion converted to his own use or disposed of in violation of any direction of law etc. Every partner has dominion over property by reason of the fact that he is a partner. This is a kind of dominion which every owner of property has over his own property. But it is not dominion of this kind which satisfied the requirements of Section 405. In order to establish "entrustment of dominion" over property to an accused person the mere existence of that persons dominion over property is not enough. It must be further shown that his dominion was the result of entrustment. Therefore as rightly pointed out by Harris CJ., the prosecution must establish that the dominion over the assets or a particular asset of partnership was, by a special agreement between the parties, entrusted to the accused person If in the absence of such an agreement a partner receives money belonging to the partnership, he cannot be said to have received it in a fiduciary capacity or in other words cannot be held to have been ''entrusted'' with dominion over partnership properties. (Emphasis added).

During the discussion, the Supreme Court noticed the cases of Jagannath, Okhoy Coomar Shaw and Bhuban Mohan Rana and held:

It seems to us that the view taken in Bhuban Mohan Rana''s case by the later Full Bench of the Calcutta High Court is the right one.

It however, appears that the three-Judges decision in R.K. Dalmia (supra) was not cited in which Jagannath''s and Okhoy Coomar Shaw''s cases, as noted above, were cited with approval.

In the case of Debabrata Gupta Vs. S.K. Ghosh, , decided by two illustrious Judges-Hon. A.N. Rai J. (as his Lordship then was) and I.D. Dua J. Velji Raghavji''s case (supra) was noticed but distinguished. The facts were that a dispute had arisen between Debabrata and S.K. Ghose. the two partners of a firm. At the instance of one, an Arbitrator had been appointed by the Calcutta High Court u/s 20 of the Arbitration Act while the other had brought a suit for dissolution of partnership and accounting. In the meantime, the former filed a criminal complaint on which the Magistrate had issued process against the latter under Sections 406 IPC and 424/34 IPC which was challenged before the High Court at Calcutta. The process regarding 424 IPC was quashed by the High Court on ground of territorial jurisdiction but it refused to quash process regarding 406 IPC. The Supreme Court, dismissing the appeal from the said judgment of the Calcutta High Court declined to apply Velji Raghavji''s authority because it had to be established as of fact that there was no special entrustment of property. It may be useful to quote the relevant observations:

Counsel for the Appellant relied upon the decision of this Court in Velji Raghavji Patel v. State of Maharashtra where one of the partners was convicted of an offence of Criminal breach of trust u/s 409 of the IPC and this Court held that where a partner realised a sum in his capacity as a partner and utilised them for the business of the partnership, he was only liable to render accounts to his partner and his failure to do so would not amount to criminal breach of trust. Counsel for the Appellant invoked the application of the same doctrine to the present case.

In order to acceed to the contention it has to be established first that the dispute is only between the partners and secondly it does not relate to any special entrustment of property which constitutes one of the basic ingredients of an offence u/s 406 of the IPC. This Court in Patel''s case (supra) approved the decision of the Calcutta High Court in Bhub Mohan Rana v. Surendra Mohan Das and said that before Criminal breach of trust is established it must be shown that the person charged has been entrusted with property or with dominion over the property. In other words, the offence of Criminal breach of trust u/s 406 IPC is not in respect of property belonging to the partnership but is an offence committed by the person in respect of property which has been specially entrusted to such a person and which he holds in a fiduciary capacity.

(Emphasis added)

A close reading of the aforesaid judgment along with the other decisions noted above and the relevant provisions of the Indian Partnership Act and the Penal Code fortifies the conclusion that where from out of the income of the firm the share of a partner is determined at the drawing of the balance-sheet by a partner who is managing the affairs on behalf of all the partners, and the partner claims payment of his/her share forthwith, that much of amount must be disbursed by that Managing partner, which will be deemed to be held in trust by the Managing partner, by agreement of all the partners and no accounting is necessary. It may be relevant to mention here that there is no other reported decision of the Supreme Court between 1962 and this day wherein the question of liability of a partner u/s 406 IPC at the instance of another partner may have been considered.

Yet another argument of Shri Tiwari has to be met before going into the facts of this case. He argued that the complainant has or had a remedy in the Civil Court, hence the criminal proceeding should be quashed.

A criminal prosecution would not be completely barred merely because a civil remedy is or was available. Criminal law and Civil law can be taken recourse to even simultaneously because the two remedies are not mutually exclusive rather they are coextensive. The two remedies essentially differ in their contains and consequences, the object of criminal law being to punish an offender while civil remedy might beget compensation for the loss suffered. If any authority is needed for this proposition, the case of Pratibha Rani Vs. Suraj Kumar and Another, , is the direct one at hand which lays down that a wife can prosecute her husband u/s 406 IPC if he refuses to return her ''stridhan'' because then it amounts to criminal breach of trust, and, an argument of the type advanced by Shri Tiwari has been negatived. Moreover, in Debabrata''s case (supra), arbitration proceedings and civil suit were already pending when the High Court had declined to quash the process u/s 406 IPC and that judgment was upheld by the Supreme Court. Therefore, the aforesaid argument of Shri Tiwari also fails.

This being the legal position, it will naturally depend on the facts of each case whether the accused-partner has dishonestly embezzled or misappropriated the property of the complainant-partner over which he had dominion or which was entrusted to him and be became a trustee or deemed to have become a trustee by agreement, la the instant case, from a perusal of the complaint allegations, the statement of the complainant and witnesses recorded under Sections 200 and 202 Code of Criminal Procedure and documents produced, it appears that as per the balance-sheet, 1984, the share of profit of the complainant came to Rs. 48,585/-out of which only Rs 2,465/- were paid while the balance was not paid inspite of oral demands and legal notice. It is admitted case of the parties that the complainant, is a lady residing in Purabia tola in the city of Etawah while the business of the firm was being carried on in Parihar-tola in Auraiya, a suburb of district Etwah. Even though it has been mentioned in the complaint that all the four accused were running the business, it may be noted here that there is absolutely no other allegation against accused applicants Smt. Porwal, Smt. Manjesh and Padam Deo Gupta while it has been clearly alleged that accused applicant Vidyadhar is the ''KARTA FIRM'' i.e. Managing Partner of the firm and the said statement contained in the legal notice has not been denied in any of the affidavits filed in this Court. The balance sheet appears to have been drawn by Vidyadhar alone who has signed it as per the statement of PW 2 Shyambabu. The signature of no other accused is found in any other document. Viewed in the aforesaid background of facts, a prima-facie case stands made out against Vidyadhar the managing-partner only and no offence is disclosed against the other three accused. In view of the discussions aforesaid, the Magistrate has wrongly applied Section 420 IPC as the allegations prima-facie attract only Section 406 IPC.

For the foregoing reasons, the Revision and the Criminal Miscellaneous Application are partly allowed. The summoning order dated 28-1-1989 of llnd Additional Munsif Magistrate, Etawah in Case No. 2160/88 as against Smt. Porwal, Smt. Manjesh Lata and Padam Dev Gupta, accused-applicants are quashed. The summoning order as against Vidyadhar accused-applicant is upheld subject to the modification that he will be deemed to have been summond u/s 406 IPC and the proceedings will go on against him in accordance with law. The interim order against him is vacated.

It is further directed that in case Vidyadhar accused applicant surrenders before the competent court and applies for bail, his application will be disposed of according to law, on the day it is moved, unless prevented by unforeseen circumstances