Holding

Criminal liability under Section 10(1) attaches only to partners who were in charge of and responsible for the conduct of the business; there is no vicarious liability for other partners.

Summary

The appellants, partners of a rice‑milling partnership, were convicted under the Essential Commodities Act, 1955 for failing to supply the levy rice required by the Haryana Rice Procurement (Levy) Order, 1979. They appealed, contending that the prosecution had not proved that they were in charge of the firm’s business at the time of the offence. The Supreme Court held that criminal law does not impose vicarious liability on all partners unless the statute expressly provides it; Section 10 of the Essential Commodities Act does not do so. Consequently, only a partner who was actually responsible for and in charge of the business can be held liable. Evidence showed that only appellant No. 3 (Lajpat Rai) signed the relevant documents and was in charge, while the other partners were not. The Court upheld the conviction of appellant No. 3 and set aside the convictions of appellants 1, 2 and 4, acquitting them of all charges.

Issues considered

Whether Section 10(1) of the Essential Commodities Act, 1955 imposes vicarious criminal liability on all partners of a firm for contravention of a procurement order.
Whether a partner who was not in charge of the business can be convicted under the said provision.
When the burden of proof under the proviso to Section 10(1) shifts to the accused.

Legislation cited

Essential Commodities Act, 1955s. 10(1), s. 10(2), s. 3, s. 7
Haryana Rice Procurement (Levy) Order, 1979
Indian Partnership Act, 1932s. 2(a)

Subjects

Essential Commodities Actcriminal liabilitypartnership firmvicarious liabilitylevy riceprocurement orderSection 10burden of proofacquittal

Judgment

SHAM SUNDAR & ORS.
A
v.
A..
STATE OF HARYANA

AUGUST 21, 1989

B [K. JAGANNATHA SHETTY ANDS. RATNAVEL
PANDIAN, JJ.]

Haryana Rice Procurement (Levy) Order, 1979: Contravention
of by partnership firm-Prosecution of all partners-Maintainability
of. -:)>.•
c
Essential Commodities Act, 1955: ss. 7 & JO-Contravention of
Haryana Rice Procurement (Levy) Order, 1979 by parmership firm- ~·
Liability for-Held, no vicarious liability in criminal law unless statute
so specifies.

D 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 Essential Commodities Act, 1955.
The said contravention is punishable 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 r
E the conduct of its business. Under the proviso thereto, a person is,
however, not liable to any punishment if he proves that the contraven-
t.ion took place without his knowledge or that he exercised all due
diligence to prevent such contravention. Under explanation (a) to the -
section the term "compauy" includes a firm or other association of
individuals.
F ~
The appellants, partners of a firm running a rice mill, were con-
v.icted 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.

G 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.

H Partly allowing the appeal,

886
SHAM SUNDAR v. STATE OF HARYANA ISHETTY, J.] 887

HELD: I. There is no vicarious liability in criminal law unless A
the statute takes that also within its fold. Section IO 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]

2.1 The obligation for the accused to prove under the proviso to s. B
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. I
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 I had deposed that the statement
c
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 wh<n the offence was committed. [890G-89IA]
D
The conviction and sentence of appellant No. 3 are, therefore,
maitltained. The conviction and sentence of appellant Nos. I, 2 and 4 are
set aside. They are acquitted from all the charges. [891C]

CRIMINAL APPELLATE JURISDICTION: Criminal Appeal
No. 524 of 1989. E

""' 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.
F
Mahabir Singh for the Respondent.

The Judgment of the Court was delivered by

K. JAGANNATHA SHETTY, J. We grant special leave and pro-
ceed to dispose of this appeal. G
\

t· 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 Shahpur. They have been convicted by the
Presiding Officer of the Special Court, Kamal by judgment dated
March 10, l986 for contravention of the provisions of the Haryana H
888 SUPREME COURT REPORTS [1989] 3 S.C.R.

A Rice Procurement (Levy) Order, 1979, read with section 7 of the J.,
Essential Commodities Act. They were sentenced to six months' rigo-
rous 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.
B
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 market. 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 ,).~
c firm ought to have supplied 3224.21 quintals of rice to the Government
but the firm failed to supply it. Instead it supplied only 1510 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 obtained. From that, the firm gave the Government 933.89 quintals
D 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 partners of the firm were
E 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 evidence
...
adduced by the prosecution that the appellants were in charge of the
business of the firm when the offence was committed and in the
F absence of any such evidence the conviction could not be sustained.
Counsel rested his submission on the text of section 10 of the Essential
Commodities Act. This section provides:

"10. Offences by companies-(1) If the person contraven-
ing an order made under section 3 is a company, every
G 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:
H
SHAM SUNDAR v. STATE OF HARYANA lSHElTY, J.] 889
) Provided that nothing contained in this sub-section
A
render any such person 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.

(2) Notwithstanding anything contained ·in sub-sec- B
tion where an offence under this Act has been committed
by a company and it is proved that the offence has been
committed with the consent or connivance of, or is attribut-
able to any neglect on the part of, any director, manager,
secretary or other officer of the company, such director,
manager, secretary or other officer shall also be deemed to
be guilty of that offence and shall be liable to be proceeded c
against and punished accordingly."

Explanation-For the purposes of this section,-

(a) "Company" means any body corporate, and includes a o
firm or other association of individuals, 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 E

- 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 F
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 diligence on their part. He relied upon the G
\
proviso to sub-section (1) of sec. 10. It is true that under the Indian
t 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 partner-
ship. The essential characteristic of a firm is that each partner is a
representative of other partners. Each of the partners is an agent as H
890 SUPREME COURT REPORTS [1989] 3 S.C.R.

A 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
Partnership 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
B rise to a right enforceable by or against the firm.

But we are concerned with a criminal liability under penal provi-
sion and not a civil liability. The penal provision must be strictly
construed in the first place. Secondly, there is no vicarious liability in ·";,(
criminal law unless the statute takes that also within its fold. Section 10
C does not provide for such liability. It does not make all the partners ~.
liable forthe 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
D 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 partnership.
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
E 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 condiiion mentioned in sub-section (1) is established. The
-
requisite condition is that the partner was responsible for carrying on
F the business and was during the relevant time in charge of the busi-
ness. In the absence of any such proof, no partner 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
G accused were partners of the firm. He has stated that the statement 1
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
H does not indicate anything further. He has seized the relevant docu-
SHAM SUNDAR v. STATE OF HARYANA lSHETTY, J.] 891

men ts like stock register and recovery memo and arrested all the four A
accused. These documents do not indicate even remotely that all the
partners were doing the business of the firm. There is no other evi-
dence 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 accused No. 3
B
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 behalf of the firm. His conviction cannot there-
fore be disturbed. But the conviction of other partners is absolutely
r uncalled for.

In the result we allow the appeal, set aside the conviction and c
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.
D

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