1. This is an application to quash Criminal proceedings for an offence under Section 409 IPC against Md. Abdul Sattar, managing partner of Shri Dhanalakshmi Rice and Oil Mill Contractors Company, Vijayawada. This company is a partnership concern. The partnership was created by an agreement between 16 persons in December 1954 for a period of two years for the purpose of working the said company at Vijayawada. The shares of all the partners are not equal. The accused has l/24th share therein. Like others he brought into the concern his own share of capital.
He being more experienced in the business was, by a special resolution dated 9-12-1954, appointed a managing partner. A remuneration of Rs. 100/- per month was fixed for him by the said resolution to which he too was a party. He was to look after the purchases and sales of paddy, the working of the mill and correct maintenance of accounts and day to day business of the firm A cash credit account was opened in the State Bank of India Vijayawada in the name of the partnership firm. Two of the partners including P.W. I were authorised to operate that account.
2. The case against the accused is that the failed to enter in the cash book the full amount of the cheque of Rs. 11,000/- issued by P.W. 1 on 24-12-1955 and misappropriated Rs. 1,000/- out of it; and that he similarly on 2-1-1956 instead of entering the entire amount of Rs. 20.000/- for which the cheque was issued by P. W 1 credited only RS. 15,000/- and misappropriated the remaining Rs. 5,000/-. The proceedings were started on the police report and a charge was framed under Section 409 IPC, against the accused. He pleaded not guilty. Thereafter he has come to this Court with a request for quashing the proceedings in C.C. No. 868/1956 on the ground that this criminal proceeding against him is illegal, he being' a partner of the firm.
3. Before I go into the merits I have to dispose of a preliminary objection. It is argued that an application for quashing the proceedings ought to be made at the earliest possible opportunity and that since the petitioner has not raised the point of jurisdiction of the Court below and has waited till two witnesses, after the charge, were examined, his petition ought to be dismissed in limine. I do not think that this petition can be dismissed on such a technical ground.
The delaj alone is immaterial if there Is a strong case for the exercise of extra-ordinary jurisdiction under Section 561A Cr.PC Ordinarily this Court will be reluctant to interfere, before the completion of the trial, with the proceedings pending before the lower Court; but where the prosecution case itself, as stated in the charge sheet or on the basis of evidence adduced, clearly leads to the conclusion that there is no case against the accused and the further prolongation of the prosecution would amount to harassment, certainly it will be the duty of this Court to interfere by exercising its inherent powers.
4. So, then, the next question is, whether the Criminal proceedings are ill-founded on the facts alleged. There is no doubt that the asset in connection with which the offence is alleged to have been committed are partnership assets evidently belonging to the partners as a whole and not the exclusive property of any of the partners; that the accused is a partner in the firm having interest both In the assets and the profits that may be ascertained and further that he is clothed with power to make purchases and sales and deal with the partnership property as a Managing- Partner.
He is charged with an offence under Section 409 IPC probably as an agent and not under Section 406 IPC which is a general section. The law of partnership- is but a branch of the law of agency and Section 18 of the Partnership Act provides that subject to the other provisions of the Act a partner is an agent of the firm. But this capacity does not derogate from his capacity as a partner; nor by virtue of his management is he divested of his capacity as a partner.
As a matter of fact according to the provisions of Section 9. all partners are bound to carry on business and to render true accounts and full information of all things affecting the firm to any partner. Thus the management of the business is the right and duty of every partner. Ordinarily no partner is entitled to receive remuneration for managing the business but Section 13 of the Partnership Act permits fixation of some remuneration by agreement.
It is on this account that the remuneration has been fixed under a resolution for the accused. But the fixation of such remuneration does not alter his status as a partner. So then it has to be considered whether as a partner he can be prosecuted for an offence of Criminal breach of trust. That offence is defined in Section 405 IPC which is in the following words:
Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property or dishonestly uses or disposes of that property In violation of any direction of law prescribing the mode in which suchi trust is to be discharged, or of any legal centract, express or implied, which he has made touching-the discharge of such trust or wilfully suffers any other person so to do commits 'Criminal breach of trust.
It Is clear that a person to be guilty of criminal breach of trust should be (a) entrusted with property (b) or With any dominion over the property, (c) that he should dishonestly misappropriate or convert it to his own use (d) in violation of any direction or law prescribing the mode in which such trust is to be discharged and (e) or of any legal contract, express or implied. Thus the main ingredients are entrustment or dominion over the property and dishonest misappropriation. No doubt the expression 'whoever' in Section 405 is wide enough to cover all persons but the offence can be made out onty IX its ingredients are fulfilled.
5. The point is, whether a partner having regard to the nature and incident of partnership can be deemed to be entrusted with the property as against the other partner or partners. Section 15 of the Partnership Act provides that subject to the contract between the parties the property of the firm shall be held and used by the Partners exclusively for the purpose of the partnership business.
In other words, in the absence of any agreement to the contrary, all the partners hold, use and have interest in the whole of the partnership property. They have community of interest and hence their rights in the property are not mutually exclusive. So long as the partnership subsists this property cannot be deemed to be separate property of any partner. No partner therefore can claim exclusive interest in the property nor till the dissolution of partnership and the accounts any specific item of property can belong to any partner to the exclusion, of others.
Such being the incidents of ordinary partnership no entrustment of property within the mean-Ing of Section 405 IPC is possible. Entrustment contemplated by this section is of the property which is not his and which he does not hold in his right. The entrustment or dominion of the property must be by one as against the other. Since the partnership property is as much the property of one partner as it is of his co-partner or copartners, it cannot attract the operation of an offence of Section 406 IPC
Of course, the case would be different if there be a contract as contemplated by Section 15 between the partners that a particular property would be the separate property of the partner. The law on this point has been laid down in Bhuban Mohan v. Surendra Mohan : AIR1951Cal69 , wherein all the previous cases are reviewed. That was a decision of Five Judges to whom the matter was referred on account of conflict of authorities on the subject. In In re Lall Chand Roy, 9 Suth WR 37 (Cr) (B), it was held by a Division Bench of that Court that a partner cannot be Prosecuted for criminal breach of trust.
But in The Queen v. Okhoy Coomar 13 Beng LR 307 (C), which was a judgment of the Pull Bench a different view was taken. It Was expressed therein that the words in Section 405 I- P.C., were wide enough to include the case of a partner. It was further observed if it be proved that in fact a partner was entrusted with Partnership property or dominion over it and has dishonestly misappropriated it or converted it to his own use there is no rule that the case of the petitioner should be excepted from the operation of the section. .
This decision did not give any indication aa to the circumstances under which a partner can be said to be entrusted with partnership property or with dominion over it. The dictum in piddocke v. Burt (1894) l Oh 343 CD), that a partner receiving money belonging to the partnership on account of himself and his co-partner does not do so in a fiduciary capacity, represents the true position of a partner under the law of Partnership.
The Indian Partnership Act of 1932 is based on the English Act of 1890 and the codified law both in India and England is not exhaustive on the law of partnership. However the law as it was in England as referred to above would not permit the criminal prosecution of a partner for stealing, embezzling or misappropriating the property of a firm. This legal difficulty and disability were removed to an extent by 31 and 32 Viet. Chapter 116, now replaced by Section 40(4) Larceny Act.
No such legislation has been enacted In India, The position in India is the same as It was in England before such legislation. The sections relating to criminal breach of trust do not admit of an interpretation that there can be entrustment of property belonging1 to one's own self. The words 'property of himself and or any other person' used in Section 424 I, P. C, do not find place in sections relating to criminal breach of trust.
This omission is intentional and brings out the mind of the legislature. Such being the case the observations in 13 Beng LR 307 (FB) (C), led to some practical difficulties in applying the law to the case of partners. The views of various High Courts and some of the Judges of the same court did differ. The question was referred to the Pull Bench of the Calcutta High Court to resolve this conflict.
The learned Judges of the Calcutta High Court in : AIR1951Cal69 , after fully considering the judgment of the Pull Bench observed1 that a charge of criminal breach of trust against a partner by a co-partner in elation to property belonging to both cannot be lawfully framed. They expressed that the Pull Bench Case of 13 Seng LR' 307 (C), may be regarded a$ rightly decided if it is confined to cases where under a special agreement entered into between the parties entrustment of the property or dominion over it was given to any particular partner.
But if it lays down any general rule applicable to prosecution of all partners for offences under Section 406 IPC, In respect of property received or held by such partner on behalf of the partnership in the ordinary course of partnership dealings, that cannot be regarded as cotrectly decided. It may be remembered that the case of : AIR1951Cal69 , related to the partnership property, which on account of communal disturbance at the time was with the consent of the partners removed to one of the partner's house for safety purposes but later on the partner concerned misappropriated and denied all knowledge about the property.
In such circumstances it was held by the Full Bench that the said partner could not be charged with criminal breach of trust. The proceedings before the learned Magistrate were on that ground ordered .to be quashed. The judgment proceeded on the principle that there was no entrustment of the partnership property or dominion over it by one partner against the other under the ordinary partnership unless there was special agreement.
Harries O. J.t observed that there can be no fiduciary relationship with regard to the partnership property and a partner cannot therefore be guilty of fraudulent breach of trust in view of the ordinary incidents of partnership; of course the case may be different if there is any special agreement Mukherji, J., observed:
It is only when (such) ordinary character and nature of the partnership property are varied by special contract of partnership so as to create entrustment of any specific property in favour of one partner as against the others or so as to give exclusive dominion of such property to one partner as against the other that there can be any scope of application of Section 405 Penal Code.
According to Banerji, J.
unless there is an agreement between the parties that a particular property will be the separate property of a partner there cannot be any entrustment of it to the other partner or partners.
It follows that unless there is a special agreement which admits of operation of Section 405 I. P. C a partner cannot be prosecuted for criminal breach of trust in respect of partnership property. Evidently there is no such special agreement in the instant case. The partner held the property on behalf of himself and his co-partners.
There is no occasion therefore to attract the provisions of Section 406 or Section 409 IPC That apart, even on facts alleged, misappropriation itself is open to doubt. One of the witnesses examined who was entrusted with the maintenance of the account books has clearly stated that the firm maintained duplicate books, that all the transactions were not brought to the cash book, that unauthorized expenditure was written in a private account without being entered in the public account and that the private accounts are with P.W. 1.
He further deposed that A-l and the other clerk wrote accounts to the dictation of P.W. 1. In view of this statement, the mere fact that the cash book did not contain the entries of the full amount drawn from the bank does not assume any criminal significance. In these circumstances, I see no reason why criminal proceedings should continue. Thus both on law and on facts this application should be allowed. I therefore allow this petition and quash the proceedings in Cr. M. P. No. 868 of 1956.