The Madras High Court has asserted that although a firm is not a juristic person, a partner could not be liable unless one of the twin requirements as stipulated under Section 62 of the Benami Property Transactions Act, 1988 (PBPT Act), to make him/her vicariously liable is satisfied.
The Court explained that, to fasten vicarious criminal liability on a partner for an offence committed by a firm under the PBPT Act, the complaint must contain specific averments that the partner was, at the time of the offence, in charge of and responsible for the conduct of the business of the firm.
Therefore, the High Court ruled that merely being a partner of the firm is insufficient to establish criminal liability, and the primary responsibility lies with the complainant to plead and prove the partner’s active role. In contrast, a Managing Partner’s role, evidenced by signing financial documents, prima facie establishes their involvement and responsibility, making them liable to face prosecution for the firm’s actions.
As far as the role of the Firm and the Managing Partner is concerned, a Single Judge Bench of Justice Sunder Mohan observed that the petitioners’ defence regarding the genuineness of the income cannot be adjudicated at the discharge stage, especially given the allegations of bogus bills and the firm’s low income in previous years.
The Bench noted that under Section 2(9)(D) of the PBPT Act, a ‘Benami Transaction’ can include a transaction where the person providing the consideration is not traceable. Therefore, the failure to identify the beneficial owner is not a valid ground for discharge.
The Bench stated that the second accused is admittedly the Managing Partner, and such large cash deposits could not have been made without his consent. Further, his signature on the Balance Sheet and other documents prima facie indicates his knowledge and consent.
As far as ‘Partner’ is concerned, the Bench noted that the third accused had taken a specific stand in her reply to the show-cause notice that she was only a dormant partner. The Bench found that the impugned complaint lacked the “requisite averments” to hold her vicariously liable for the firm’s offences, without specifically averring that she was in-charge of and responsible for the conduct of the firm’s business.
Briefly, following demonetisation in 2017, cash deposits amounting to Rs. 68.71 Crores were made into the bank account of M/s. V.P.C. & Co., a partnership firm. The accused, i.e., the firm (A1), its Managing Partner R. Ramesh (A2), and his wife/partner R. Kalaivani (A3) lacked the necessary sources to explain these deposits. Further, the firm’s declared income in previous assessment years was significantly lower, making the sudden claim of high turnover improbable. Also, the firm had an outstanding overdue of Rs. 4.93 Crores as of November 5, 2016, which contradicts the claim of possessing Rs. 68 Crores in cash.
The prosecution therefore alleged that the accused filed bogus bills to support their claims, citing evidence that vehicle registration numbers on the bills belonged to two-wheelers, not trucks. Accordingly, the case was filed under Section 53 of the Prohibition of Benami Property Transactions Act, 1988 (PBPT Act).
Accused 1 & 2 argued that the Rs. 68.71 Crores was the firm’s legitimate turnover from cash sales and advances accumulated over seven months prior to demonetisation. They also contended that the complaint lacked specific averments that the Managing Partner (A2) was in charge of and responsible for the firm’s business. Accused 3 claimed she was a dormant partner and all business affairs were managed by her husband (A2). She argued that the complaint failed to make the requisite averments to invoke vicarious liability against her under Section 62 of the PBPT Act.
The matter went into trial, where the IX Additional Special Judge for CBI Cases, dismissed the discharge petitions filed by the accused, reasoning that the court cannot weigh and sift evidence at the charge-framing stage and that the prosecution had established a prima facie case.
Appearances:
Senior Advocate R. John Sathyan and Advocate S. Manuraj, for the Petitioner/ Taxpayer
Special Public Prosecutor, M. Sheela, for the Respondent/ Revenue
