Criminal Prosecution Cannot Survive Against Retired Partners When Evidence Proves Exit Before Offence: Kerala High Court Quashes Trial in Financial Fraud Case

“When documentary records clearly show cessation of partnership before the alleged act, continuing prosecution is an abuse of process” –  In a critical decision underscoring the limits of criminal liability in partnership-related offences, the Kerala High Court discharged two individuals from facing trial in a cheating and misappropriation case against a financial firm, holding that retired partners cannot be dragged into criminal prosecution for acts committed after their retirement.

Delivering the judgment in T.G. Alexander & Annamma Alexander v. State of Kerala, Justice G. Girish observed that where “undisputed documentary evidence establishes retirement before the relevant period, continuation of prosecution amounts to abuse of process.” The Court firmly held that the trial court's refusal to discharge the petitioners was unjustified in law and fact.

“It is the duty of the prosecution to prove the accused were responsible for the business at the time of offence; not the other way round” – High Court rebukes Magistrate’s reasoning

The case arose from criminal proceedings initiated against partners of Malayil Financiers, a firm accused of collecting public deposits on the promise of high returns and later defaulting on repayment. The petitioners, T.G. Alexander and Annamma Alexander, were arrayed as Accused Nos. 3 and 4 in C.C. No.1110/1999 before the Judicial First Class Magistrate Court, Thiruvalla.

According to the prosecution, the firm, through its partners, committed offences under Sections 403, 406, 409, 420 and 120B of the Indian Penal Code, relating to dishonest misappropriation, breach of trust, cheating, and conspiracy. The crux of the allegation was that the firm had defrauded depositors after collecting funds under false promises.

The petitioners, however, argued that they had retired from the partnership firm on 30 April 1996, much before any of the alleged criminal acts occurred. In support of their claim, they produced a civil court decree from the Sub Court, Pathanamthitta in O.S. No.158/1999, as well as a communication from the Registrar of Firms, both confirming that they had ceased to be partners as of the said date.

Despite this, the Magistrate declined their plea for discharge, holding that the question of their liability needed to be determined at trial. This decision was challenged in revision before the High Court.

“Once it is admitted that the alleged acts occurred after the petitioners ceased to be partners, there is no legal foundation to continue criminal proceedings” – Court finds trial against ex-partners untenable

Justice G. Girish, in a detailed and strongly worded judgment, rejected the Magistrate’s view that the retirement issue should be left to the trial stage. The High Court stressed that criminal law cannot be used to coerce or harass persons against whom no prima facie case is made out, especially when official records conclusively negate their role in the alleged acts.

The Court noted:

“The nature of the allegations in the crime is that the petitioners, in their capacity as partners of a partnership firm, had resorted to cheating and criminal breach of trust. In such a case, it is the incumbent responsibility of the prosecution to establish that the petitioners were actually responsible for and in-charge of the conduct of the business of the aforesaid partnership firm at the time when the offence was committed.”

It was also highlighted that the Magistrate had already perused both the civil decree and the Registrar’s communication, yet chose to proceed on a presumption that the defence should be evaluated during trial. This, the Court held, was “a reasoning that cannot be accepted.”

“There is absolutely no justification in saying that petitioners have to face prosecution for the commission of a crime which took place after they ceased to be partners” – High Court upholds principle of personal criminal responsibility

In a stinging critique of the trial court’s order, the High Court reiterated that criminal responsibility must be anchored to the role and position of the accused at the time of offence, not their historical association with the firm. The Court stated that dragging individuals into a trial despite overwhelming evidence of non-involvement is a misuse of judicial process and serves no legitimate purpose.

Justice G. Girish concluded:

“Therefore, the prayer of the petitioners for their discharge from the criminal prosecution is fully justified.”

Accordingly, the High Court:

• Set aside the order dated 10.09.2009 of the Judicial Magistrate refusing discharge

• Allowed the revision petitions

• Discharged Accused Nos. 3 and 4 from the pending criminal case

Kerala High Court reasserts boundaries of vicarious liability in partnerships; says past association does not equal present culpability

This decision has significant implications for criminal law jurisprudence, especially in cases involving partnership firms and vicarious liability. The Court clarified that mere association with a firm in the past is not sufficient to impute criminal intent or participation, and that proof of contemporaneous involvement is a non-negotiable prerequisite for criminal prosecution.

The ruling stands as a stern reminder that criminal trials are not fishing expeditions, and that the liberty of individuals cannot be jeopardised on speculative or outdated assumptions.

Date of Decision: 17 October 2025