52. A Partner filed a criminal complaint and prosecuted a person for theft of partnership property. The prosecution failed and the accused who was acquitted brought an action against the firm for damages for malicious prosecution. Is the firm liable?

1. Facts of the Case

• A and B are partners in a partnership firm carrying on business jointly.
• A, acting individually, filed a criminal complaint against a third person alleging theft of partnership property.
• The case failed in court, and the accused was acquitted, as the prosecution could not prove the charge.
• The acquitted person then filed a civil suit against the partnership firm (A & B) seeking damages for malicious prosecution, claiming that the complaint was false, baseless, and malicious.
• The question arises whether the firm as a whole is liable for the wrongful act committed by one partner in filing the criminal case.

2. Issues in the Case

1. Whether the act of filing a criminal complaint by one partner is an act done in the course of the business of the firm.
2. Whether the firm can be held vicariously liable for the malicious prosecution initiated by one of its partners.
3. Whether such an act can be considered as binding on the firm under the Indian Partnership Act, 1932.

3. Legal Principles Covered to Support Case Proceedings and Judgements

Relevant Provisions:

1. Section 18 – Indian Partnership Act, 1932 (Partner as Agent of the Firm):
   • Every partner is the agent of the firm and the other partners for the purposes of the business of the firm.
2. Section 19(1) – Implied Authority of Partner as Agent of the Firm:
   • The act of a partner done in the usual course of the business binds the firm.
3. Section 19(2) – Acts Beyond Implied Authority:
   • Certain acts cannot be done by a partner on behalf of the firm unless authorized by the other partners — such as submission to arbitration, compromise of disputes, or withdrawal of suits.
   • Criminal prosecution is not an act within the ordinary course of partnership business, unless the firm’s nature of business specifically involves such actions (for example, private investigation firms).
4. Section 25 – Liability of a Partner for Acts of the Firm:
   • Every partner is jointly and severally liable for all acts of the firm done while he is a partner.
   • However, the act must be within the scope of the partnership business and the implied authority of the partner.
5. Principle of Vicarious Liability:
   • The firm is liable for wrongful acts of a partner only when those acts are committed in the ordinary course of business or with the authority of the other partners.

Legal Analysis:

• The filing of a criminal complaint for theft is an individual act of the partner, and not an act done in the ordinary course of business of the partnership firm.
• Unless the other partners or the firm had authorized or ratified the prosecution, the act cannot be considered as binding on the firm.
• Therefore, A’s act of filing a criminal case was beyond his implied authority under Section 19(2).
• The principle of agency under Section 18 applies only when the partner acts within the course of business.
• The partnership firm, being a collective entity, cannot be held responsible for the malicious prosecution initiated by one partner without consent or ratification.
• Hence, only the partner who filed the case (A) can be personally liable for malicious prosecution, not the firm.

Supporting Case Laws:

1. Hamlyn v. Houston & Co. (1903) 1 KB 81:
   • A firm was held liable where a partner committed a wrongful act in the course of business and for the benefit of the firm.
   • However, if the act was outside the scope of business, the firm was not liable.
2. Govind Narayan v. Rangnath Gopal, AIR 1951 Nag 239:
   • The court held that malicious prosecution initiated by one partner was not an act within the scope of the firm’s business, hence the firm was not liable.
3. Lloyd v. Grace, Smith & Co. (1912 AC 716):
   • The firm was held liable when a partner or agent committed a wrongful act while performing business duties.
   • By contrast, filing a criminal case is not a business duty, so liability does not arise.
4. Indian Partnership Act Interpretation:
   • Partners’ implied authority does not extend to criminal prosecutions or personal acts unrelated to the firm’s business.

4. Possible Judgement

• The act of filing a criminal complaint for theft was not done in the ordinary course of the firm’s business.
• A, the partner, filed the complaint in his individual capacity, and there is no evidence of authorization or ratification by the other partners.
• Therefore, the act does not bind the firm under Sections 18 and 19 of the Indian Partnership Act, 1932.
• The firm cannot be held vicariously liable for damages arising from malicious prosecution initiated by one partner for personal or extraneous reasons.
• However, A, the partner who initiated the criminal case, can be personally liable if malice and lack of reasonable cause are proven.

Judgement:

• The firm is not liable for damages for malicious prosecution.
• Only A, the partner who filed the criminal complaint, may be held personally responsible if malice and lack of probable cause are established.
• The suit against the firm for malicious prosecution fails.

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