VIDV DHAR A Vs. SHUSHKALA A

JUDGEMENT

(1.) 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 under Section 406, I. P. C. if the former's profit as is shown in the balance-sheet of the firm drawn by the latter is not disbursed to her m spite of notice of demand

(2.) SMT. Shushkala, opposite-party No. . 1, was partner of a firm Ms Sri Durga Das Mill situated in Mohalla Mahabirganj, Auraiya, Etawah, aloagwith Vidyadhar, Padam Dev Gupta, SMT. Sarla Porwal and SMT. Manjesh 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. In spite 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 Srat. 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 under Section 200, Cr. P. C. and examined Balkrishua Sharraa and Shyambabu under Section 202, Cr. P. C. copies, of the partnership deed, the balance-sheet, the part nership Capital register dated 28-8-85 and of the notice dated 22-1-1988 were filed alongwith the complaint. The Magistrate by his order dated 28-1-1989, alter considering the statement of the complainant the witnesses and the document referred to above, summoned the four accused under Section 420, I. P. C. 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 c impugned order have been challenged in the application under Section 4s2 Cr. I'. C. by those four partners.

(3.) THE main argument of Sri Tiwari has been that all the partners consti tuted 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 pro visions 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 B. M. Rana v. S. M. Das reported in AIR 1959 Calcutta, page 69, and the decision of Supreme Court in the case of Veil Raghuvir v. State of Maha rashtra, reported in AIR 1965 Supreme Court page 1433 and the case of Hari Prasad Chaurasia v. Bishnu Kumar, reported in AIR 1974 Supreme Court page 301. It was further argued that a civil suit had been filed by the camplainant 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 court the summoning order is manifestly illegal. 6 Sri Saxena, however, while placing reliance upon some other provisions of the Partnership Act, also relied upon the case of Veil Raghuvir (supra) and further cited case of R. K. Dalmia v. Delhi Administration, reported in All Supreme Court page 1821. He further argued that the limitation of three years for recovering the amount has already expired because an 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 under Section 406, I. P. C, the order may be corrected accordingly. 7. THE answer to the problem in the present case depends upon the draw ing 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 cot done and the share of indivi dual 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. 8. 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 10 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 the 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. 9. Having thus seen broadly the rights and liabilities of the partners in a firm the argument of Sri Tiwari that no partner can be prosecuted at the instance of another partner as such does not get any support from those provisions nor docs it derive any strength from the relevant sections of the Indian Penal Code. Section 403, I. P. C and Section 405, I. P. C 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 in spite 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 property 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. 10. 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 11 In Jaganath's case, AIR 1932 Bombay 57, Beaumont, C. J. 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. 12. In Okhay Cootnar Shaw, 21 Suth WRCr. 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. 13. In Bhubhan Mohan Rana, AIR 1951 Calcutta 69, another Full Bench of Calcutta High Court held that a partner cannot be charged under Section 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 Bhubhan's case (supra)]. 14. In R. K. Dalmia's case (supra) which was decided by three illustrious judges - Hon. S. K. Das, J. Hoa. K. Subba Rao, J. (as their Lordships then were), and Hon. Raghubar Dayal, JJ. 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 Jagannath's and Okhoy Coomar Shaw's case (supra) were cited with approval. 15. In Velji Raghavji's case (supra), which was decided by two illustrious Judges - Hon. R. Dayal, J. and 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 his dominion over properly 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, C. J , 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 receiv ed 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 Bhubhan Mohan Rana and held : It seems to us that the view taken in Bhubhan 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 K. K. Dalmia (supra) was not cited in which Jagannath's and Okhoy Coomar Shaw's cases, as noted above, were cited with approval. 16 In the case of Debabrata Gupta v. S. K. Ghosh (1970) 1 SCC 521, decided by two illustrious judges - Hon. A. N. Ray, 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. Ghosh the two partners of a firm. At the instance of one, arbitrator had been appointed by the Calcutta High Court under Section 20 of the Admiration Act while he other had brought a suit for dissolution of partnership and accounting. In the meantime former filed a criminal complaint on which the Magistrate had issued against the latter under Sections 406 and 424/34, IPC which was challenged before the High Court at Calcutta. THE process regarding 424 IPC was issued by the High Court on ground of territorial jurisdiction but it refused o quash process regarding Section 406, IPC. THE Supreme Court dismissing the appeal from the said judgment of the Calcutta High Court declined to apply Velgi Rahavji'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 Pat el v. State of Maharashtra where one of the partners was convicted of an offence of criminal breach of trust under Section 409 of the I. P. C 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 applicant invoked the application of the same doctrine to the present case. In order to accede to the contention it has to be established first that the dispute is only between the panic's and secondly it does not relate to any special entrustment of property which constitutes one of the basic ingredients of an offence under Section 406 of the IPC. This Court in Patel's case (supra) approved the decision of the Calcutta High Court in Bhubhan 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 under Section 406, I. P. C is not in respect of property belonging to the partnership but is an offence committed by the person in respect of properly which has been specially entrusted To such a person and which holds in a fiduciary capacity. (Emphasis added) 17. A close reading of the aforesaid judgment alongwith the other deci sions 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 under Section 406, IPC at the instance of another partner may have been considered. 18 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 proceedings should be quashed. 19 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 co-extensive. THE two remedies essentially differ in their contents 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 v. Suraj Kumar, AIR 1985 S. C. 628 is the direct one at hand which lays down that a wife can prosecute her husband under Section 406, I. P. C 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 under Section 406, IPC and that judgment was upheld by the Supreme Court THErefore, the aforesaid argument of Shri Tiwari also fails. 20. This being the legal position, it will naturally depend on the fasts of each case whether the accused- partner has dishonestly embezzled or misappro priated the property of the complainant-partner over which he had dominion or which was entrusted to him and he becomes a trustee or deemed to have become a trustee by agreement. In the instant case, from a perusal of the complainant allegations, the statement of the complainant and witnesses recorded under Section 200 and 202 Cr. P. C. and the 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 in spite of oral demands and legal notice It is admitted case of the parties that the complained is a lady residing in Purabia Tola in the city of Etawah while the business of the firm was being carried on in Panihar-Tola in Auraiva, a suburb of District Etawah Even though it has been mentioned in the complainant that all the four accused were running businesses' it may is noted here that there is absolutely no other allegation against accused-applicants Smt. Portal, Smt Manjesh and Padam Dev Gupta while it has been clearly alleged that accused-applicant. Vidya-dhar is the 'karta FIRM' i. c. 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 Vidya-dhar alone who has signed it as per the statement of P. W. 2 Shyambabu. THE signa ture 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 Vidya-dhar 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, I. P. C. 21 For the foregoing reasons, the Revision and the Criminal Miscella neous Application are partly allowed. THE summoning order dated 28-1-1989 of IInd Additional Munsif Magistrate, Etawah in Case No. 216088 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 summoned under Section 406, IPC and the proceedings will go on against him in accordance with. law. THE interim order against him is vacated. 22 It is further directed that in case Vidyadhar accused-applicant surrenders before the competent court and applies for bail, his application will according to law, on the day it is moved, unless prevented by unforeseen circumtances. .