The Kerala High Court has clarified that mere partnership in a firm accused of running an unregulated deposit scheme does not automatically render co-partners liable, absent specific allegations connecting them to the fraudulent conduct. This ruling reinforces the principle that bail must be granted where the prosecution fails to establish a prima facie case against an accused, particularly when they are senior citizens with no direct role in the alleged offence.
Background & Facts
The Dispute
The dispute arises from Crime No.758/2025 registered at Pavaratty Police Station, Thrissur, against Mythri Traders, a firm alleged to have collected Rs.2,31,930/- from a de facto complainant by promising high returns on deposits, without fulfilling the obligation to pay interest or return the principal. The firm’s managing partner, accused No.1, is the primary target of the prosecution. Accused Nos.2 to 4 - Sicily, Mercy, and Varghese - are named as partners in the firm but are not alleged to have participated in soliciting deposits, managing funds, or making representations to investors.
Key Facts
- The de facto complainant deposited Rs.2,31,930/- with Mythri Traders between January and March 2025.
- The firm ceased operations in April 2025 without returning the deposits or paying interest.
- The First Information Report (FIR) dated 12.05.2025 names accused No.1 as the sole person who induced the complainant to deposit money.
- There are no allegations in the FIR or case diary that accused Nos.2 to 4 had any role in soliciting deposits, handling funds, or making false promises.
- Annexure 3 reveals that the applicants (accused Nos.2 to 4) filed a complaint against accused No.1 on 06.08.2025, alleging misappropriation of customer deposits by him - a complaint filed prior to the registration of the FIR.
- All three applicants are senior citizens: aged 61, 67, and 74 years respectively.
- No material evidence links the applicants to the criminal intent or execution of the alleged scheme.
Procedural History
- 12.05.2025: FIR registered at Pavaratty Police Station under Sections 316(2), 318(4) of Bharatiya Nyaya Sanhita, 2023; Section 3 of Kerala Money Lenders Act, 1958; and Sections 3 read with 21(1), 21(2), 21(3) and 5 read with 23 of the Banning of Unregulated Deposit Schemes Act, 2019.
- 06.08.2025: Accused Nos.2 to 4 filed a complaint against accused No.1 for misappropriation of funds.
- 19.05.2026: Additional Sessions Court (Adhoc) III, Thrissur, rejected the earlier bail application (BA No.745/2026) filed by the applicants.
- 19.06.2026: Present bail application filed under Section 482 of the Bharatiya Nagarik Suraksha Sanhita, 2023, before the Kerala High Court.
The Parties' Positions
For the Applicants
The applicants, through counsel, contended that they were falsely implicated without any specific allegations against them. They emphasized that the FIR and case diary do not attribute any act of fraud, inducement, or financial control to them. They highlighted their age, lack of involvement, and prior complaint against accused No.1 as evidence of their innocence and non-participation.
For the Respondent/State
The Public Prosecutor argued that as partners in the firm, the applicants shared collective liability under the Banning of Unregulated Deposit Schemes Act, 2019, and that their release might hamper the investigation. No specific evidence was adduced to link them to the fraudulent acts.
Relief Sought
The applicants sought pre-arrest bail to prevent arbitrary arrest and custodial interrogation, arguing that their involvement is not substantiated by any material evidence and that custodial detention is unnecessary.
The Legal Issue
The central question was whether pre-arrest bail under Section 482 of the Bharatiya Nagarik Suraksha Sanhita, 2023 can be denied to individuals who are named as partners in a firm accused of running an unregulated deposit scheme, when the prosecution fails to allege any specific act of fraud, inducement, or financial control against them.
Arguments Presented
For the Appellant/Petitioner
The applicants relied on the principle that mere association with a firm does not equate to criminal liability without proof of active participation or intent. They cited Arnesh Kumar v. State of Bihar to argue that arrest must be a last resort and that custodial interrogation is unwarranted where no prima facie case exists. They emphasized that their prior complaint against accused No.1 demonstrates their lack of complicity and reinforces their status as victims of misappropriation.
For the Respondent/State
The State contended that under Section 3 of the Banning of Unregulated Deposit Schemes Act, 2019, all partners are jointly liable for the acts of the firm, and that the applicants’ status as partners makes them liable by virtue of their position. However, no specific evidence or allegation was presented to show that the applicants had knowledge of, or participated in, the fraudulent scheme.
The Court's Analysis
The Court examined the FIR and case diary and found no specific allegations against accused Nos.2 to 4. The prosecution’s case was entirely focused on accused No.1 as the managing partner who induced the complainant. The Court noted that the applicants had taken proactive steps to report the misconduct of accused No.1 before the FIR was registered - a fact that undermined the State’s claim of their complicity.
"In the FI Statement, there is no allegation against the applicants. The definite case is that it was the accused No.1 who induced the de facto complainant to deposit money."
The Court further observed that the applicants are senior citizens with no prior criminal record and that their custodial interrogation serves no investigative purpose where the primary accused is already identified and no evidence ties them to the offence. The Court held that the burden of establishing a prima facie case lies with the prosecution, and in the absence of such evidence, the applicants are entitled to protection from arbitrary arrest.
The Court also considered the nature of the offences under the Banning of Unregulated Deposit Schemes Act, 2019, and held that while the scheme is serious, the law does not impose vicarious liability on passive partners without proof of intent or participation. The applicants’ prior complaint further negated any inference of common intention.
The Verdict
The bail application was allowed. The applicants are granted pre-arrest bail on the following conditions: (i) execution of a personal bond of Rs.1,00,000 each with two solvent sureties of the like amount; (ii) full cooperation with investigation including deemed police custody for discovery if required; (iii) appearance before the investigating officer every Saturday between 10.00 a.m. and 11.00 a.m. and as otherwise required; (iv) no commission of similar offences; (v) no contact with prosecution witnesses or tampering with evidence; (vi) no departure from Kerala without court permission; and (vii) any application for modification or cancellation of bail shall be filed in the jurisdictional court.
What This Means For Similar Cases
Partnership Alone Does Not Imply Criminal Liability
- Practitioners must challenge arrests of passive partners in business-related financial crimes where no specific acts of fraud, inducement, or financial control are alleged.
- The burden remains on the prosecution to establish individual culpability - not merely corporate association.
- Prior complaints by accused persons against the main offender can be pivotal in demonstrating lack of intent or complicity.
Senior Citizens Are Entitled to Greater Protection from Custodial Arrest
- Courts must weigh age, health, and lack of prior record when assessing the necessity of custodial interrogation.
- Pre-arrest bail should be routinely considered for elderly individuals where the allegations are vague and lack direct linkage.
- The absence of a criminal record and cooperative conduct should be treated as mitigating factors.
Procedural Compliance in Deposit Scheme Cases Is Critical
- Prosecutors must clearly delineate roles in FIRs; generic allegations against "partners" without factual basis will not sustain arrest.
- Courts should scrutinize whether the FIR reflects actual participation or is a blanket inclusion to pressure co-accused.
- Annexures such as prior complaints against the main accused must be treated as exculpatory evidence, not ignored.
