39. A partner filed a criminal case against a person accusing him of theft of the firm’s assets. However, the court found the accused innocent. Then the accused filed Suit against the firm for damages and malicious prosecution. Is the firm liable? Discuss.

1. Facts of the Case

‘A’, one of the partners of a partnership firm, filed a criminal complaint against a person, alleging theft of the firm’s property.
Later, the criminal court found the accused innocent and acquitted him of all charges.
Subsequently, the accused filed a civil suit against the entire firm, seeking damages for malicious prosecution, claiming that the firm (as a whole) should be held responsible for the wrongful action initiated by partner ‘A’.
The question arises whether the firm and the other partners are liable for damages in a case where the criminal complaint was filed by one partner in his individual capacity and not on behalf of the firm.

2. Issues in the Case

1. Whether the act of filing a criminal complaint by one partner (A) against a third person amounts to an act of the firm or a personal act of that partner?
2. Whether the partnership firm and other partners can be held vicariously liable for the malicious prosecution initiated by one partner?
3. Whether the law of agency under the Indian Partnership Act, 1932 makes the firm responsible for wrongful acts done by a partner outside the scope of business?

3. Legal Principles Covered to Support Case Proceedings and Judgements

Relevant Provisions:

• Section 18, Indian Partnership Act, 1932 – Partner to be agent of the firm:
  Every partner is an agent of the firm for the purposes of the business of the firm.
• Section 19(1), Indian Partnership Act, 1932 – Implied authority of partner as agent of the firm:
  The act of every partner who does any act for carrying on, in the usual way, the business of the firm binds the firm.
• Section 19(2), Indian Partnership Act, 1932 – Acts outside implied authority:
  Unless there is a usage or custom to the contrary, a partner has no implied authority to:
  • submit disputes to arbitration,
  • open a bank account in his own name,
  • compromise or relinquish claims,
  • institute criminal proceedings on behalf of the firm.
• Section 25, Indian Partnership Act, 1932 – Liability of the firm for wrongful acts of partners:
  Every partner is liable jointly with all the other partners and also severally for all acts of the firm done while he is a partner.
• Section 26, Indian Partnership Act, 1932 – Liability of firm for wrongful acts or omissions of a partner:
  If a partner, while acting in the ordinary course of business of the firm or with the authority of his co-partners, commits a wrongful act or omission, the firm is liable for the same to the same extent as the partner.

Legal Principles and Analysis:

1. A firm is liable for wrongful acts of a partner only when such acts are committed in the course of the firm’s business or with the authority of co-partners.
2. Filing a criminal case against someone for theft of firm property does not fall within the ordinary course of business of a partnership firm, unless the firm’s business itself involves law enforcement or similar activity.
3. Therefore, such an act is a personal act of the partner and not binding on the firm.
4. The malicious prosecution initiated by one partner cannot bind the firm, unless it is proved that the other partners authorized or ratified the prosecution.
5. The firm is a separate legal entity for the purposes of liability, but its liability extends only to acts done on its behalf and within the scope of the partnership business.

Judicial Precedents:

1. Hamlyn v. Houston & Co. (1903) 1 KB 81:
   A firm was held liable for wrongful acts committed by a partner in the ordinary course of business. However, acts outside the business scope do not bind the firm.
2. Partnership Act Cases in India:
   Courts have repeatedly held that a criminal act or malicious prosecution initiated by one partner, without the consent or authorization of others, is a personal act, and the firm is not vicariously liable.
3. Bourne v. Colodense (1950) 1 KB 743:
   A firm was held not liable for malicious prosecution initiated by a partner in his personal capacity.

4. Possible Judgement

In the present case, the act of partner A in filing a criminal case against a third person was not done in the course of the firm’s business nor under the authority of the firm.
Such an act falls outside the implied authority of a partner as per Section 19(2) of the Indian Partnership Act, 1932.

Therefore, even though the partner ‘A’ is personally liable for the malicious prosecution if proved, the firm and the other partners are not liable because:

• The act was not done in furtherance of the firm’s business; and
• The firm did not authorize, ratify, or benefit from the act.

Hence:

• The firm is not liable for damages arising from malicious prosecution initiated by one partner.
• Partner A alone is personally liable for his wrongful act if the court finds malicious intent.
• The suit against the firm for damages will fail.

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