Appeal
Appeal against the quash order in cheque dishonour case
2. Appellant has preferred the present criminal appeal being aggrieved by the final judgment and order of the Madras High Court dated 26.02.2024, whereby the High Court allowed the Criminal Original Petition No.1533/2024 preferred by the respondents-accused and thereby quashed Complaint bearing STC No.1106/2022 filed by the appellant complainant under Section 138 of the Negotiable Instruments Act, 1881 (hereinafter “the Act”, for the sake of brevity) against the respondents.
Factual Background
2. Appellant has preferred the present criminal appeal being aggrieved by the final judgment and order of the Madras High Court dated 26.02.2024, whereby the High Court allowed the Criminal Original Petition No.1533/2024 preferred by the respondents-accused and thereby quashed Complaint bearing STC No.1106/2022 filed by the appellant complainant under Section 138 of the Negotiable Instruments Act, 1881 (hereinafter “the Act”, for the sake of brevity) against the respondents.
Analysis
Points for consideration
5. On hearing the learned counsel for the appellant and the learned senior counsel for the respondent, the points that arise for our consideration revolve around the interpretation of the expressions, company and director in the Explanation to Section 141 of the Act in the context of the partners of a partnership firm. In other words, the questions are:
(i) “Whether the High Court was right in dismissing the complaint on the ground that the name of the partnership firm was not mentioned in the statutory notice issued by the appellant / complainant to the respondents under Section 138 of the Act and was also not arraigned as an accused in the complaint filed by the appellant / complainant?
(ii) What order?”
6. Before we proceed further, it is necessary to refer to the judgments in the following cases cited by the learned senior counsel, Sri S. Nagamuthu:
6.1 Aneeta Hada vs. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661 (“Aneeta Hada”) is a judgment of a three Judge Bench of this Court wherein the core question considered was, whether, in view of Section 141 of the Act, a company could have been made liable for prosecution without being impleaded as an accused, and whether a director of a company could have been prosecuted for offences punishable under the provisions of the Act without the company being arraigned as an accused. It is in the aforesaid context that after referring to several judgments of this Court, it was observed that the commission of an offence by a company is an express condition precedent to attract the vicarious liability of others such as directors or employees of a company. Thus, the words “as well as the company” appearing in the Section make it absolutely clear that when the company could be prosecuted then only the persons mentioned in the other categories could be vicariously liable for the offence subject to the averments in the petition and proof thereof. This is because a company is a separate juristic person and thus the imperative for arraigning the company as an accused for maintaining the prosecution under Section 141 of the Act. It was therefore held that it is only when the company is held to be guilty of the offence under Section 138 read with Section 141 of the Act that the other categories of offenders could also be proceeded against on the touchstone of the principle of vicarious liability as the same has been mandated by Section 141 of the Act itself. It is necessary to note that the company in the aforesaid case was a private limited company incorporated under the provisions of the Companies Act, 1956.
6.2 In the said case, the three Judge Bench followed the ratio of the judgment in State of Madras vs. C.V. Parekh, (1970) 3 SCC 491 and opined that the judgment in Sheoratan Agarwal vs. State of M.P., (1984) 4 SCC 352 did not lay down the correct law and was therefore overruled. It was further observed that the decision of this Court in Anil Hada vs. Indian Acrylic Ltd., (2000) 1 SCC 1 was also not the correct law insofar as it stated that the director or any other officer of a company can be prosecuted without impleadment of the company. It was further observed that the judgment of this Court in U.P. Pollution Control Board vs. Modi Distillery, (1987) 3 SCC 684 was also restricted to its own facts. In our view, the aforesaid decisions are not applicable to the present case inasmuch as the said decisions concerned the vicarious liability of the directors of a company when the company itself was not prosecuted against or made liable. We say so for the reason that the distinction between a company and a partnership firm has to be borne in mind while approaching these cases. Hence, the judgment of this Court in Aneeta Hada is of no assistance to the respondent herein.
6.3 In Dilip Hariramani vs. Bank of Baroda, 2022 SCC OnLine SC 579 (“Dilip Hariramani”), the issues raised were (i) whether the appellant therein, being a non-signatory to the dishonoured cheque, could have been convicted under Section 138 read with Section 141 of the Act on the basis that there was vicarious criminal liability of a partner; and (ii) whether the partner could be convicted and held to be vicariously liable when the partnership firm was not made an accused and therefore not tried for a primary or substantive offence. The facts of the case are necessary to be discussed inasmuch as in this case the respondent-Bank of Baroda had granted term loan on cash credit facility to a partnership firm- M/s Global Packaging and the repayment of the loan by the firm was through its authorized signatory who had issued three cheques which were dishonoured on presentation due to insufficient funds. A demand notice was issued to the authorized signatory under Section 138 of the Act by the bank which later filed the complaint against the authorized signatory as well as the appellant therein but the firm was not made an accused. The authorized signatory of the cheques of the appellant therein was shown as a partner of the firm. It was contended that there was no assertion or statement in the complaint made to establish the vicarious liability of the appellant therein. Both the accused were convicted by the trial court and sentenced to imprisonment for six months and asked to pay compensation under Section 357 (3) of the CrPC and in default to suffer additional imprisonment for one month. The appeal preferred before the District and Sessions Court was allowed in part by reducing the sentence till the rising of the court and enhancing the compensation amount to Rs. One Crore Twenty Lakhs with the stipulation that both the accused would suffer additional imprisonment of three months in case of failure to pay. The accused challenged the judgment before the Chhattisgarh High Court which dismissed the appeal and hence the appeal was preferred before this Court. This Court noted the following facts in the said case:
i. The Demand Notice issued on 04.11.2015 by the bank through its Bank Manager was served solely to the authorized signatory of the firm.
ii. The complaint dated 07.12.2015 under Section 138 of the Act was made against the authorized signatory as well as the appellant therein.
iii. The partnership firm was not made an accused or ever summoned to be tried for the offence.
6.4 After referring to Aneeta Hada, this Court considered Section 141 of the Act which imposes vicarious liability by a deeming fiction which presupposes and requires the commission of the offence by the company or firm. It was observed thus:
“14. … unless the company or firm has committed the offence as a principal accused, the person mentioned in sub-section (1) or (2) would not be liable and convicted as vicariously liable. Section 141 of the Act extends vicarious criminal liability to officers associated with the company or firm when the one of the twin requirements of Section 141 has been satisfied, which person(s) then, by deeming fiction, is made vicariously liable and punished. However, such vicarious liability arises only when the company or firm commit the offence as a primary offender”. (underlining by us)
In the above context, the appeal was allowed and the conviction of the appellant therein was set aside.
6.5 The reason as to why relief was granted by this Court in Dilip Hariramani was because it was observed that the partnership firm was not said to have committed the offence and was not made the principal accused. In such a circumstance, there could be no vicarious criminal liability to the officers associated with the company or firm. It is necessary to note that the complainant bank in the aforesaid case had not served the notice to the appellant therein but it was served only on the authorized signatory of the firm. Hence, relief was granted by this Court to the appellant therein. On the other hand, in the instant case, the notice was sent by the complainant to both the partners of the firm.
Hence permission is given to arraign the partnership firm as an accused having regard to the peculiar characteristics of a partnership firm and a company on which aspect we will discuss further.
Difference between a partnership firm and a company
7. Predominantly a product of judge-made law, the law of partnership was first codified in India by the Indian Partnership Act, 1932. Prior to the coming in force of the Partnership Act, Chapter XI of the Indian Contract Act, 1872 (hereinafter ‘ICA’) defined a partnership, outlined the rights and obligations of partners and provided various provisions governing the operation and existence of partnerships. Section 239 of ICA defined a partnership as:
“Partnership is the relation which subsists between persons who have agreed to combine their property, labour or skill in some business and to share the profits thereof.”
7.1 The Partnership Act was promulgated as it was considered expedient to define and amend the law relating to partnership. As it stands today, partnership law is codified in the Partnership Act and the Limited Liability Partnership Act, 2008. It is trite that these legislations, like all codifications of partnership law in common law, are based on the law of agency.
Section 4 of Partnership Act
7.3 The definition in Section 4 of the Partnership Act is a departure from the erstwhile definition of partnership in Section 239 of ICA. A significant departure, inter alia, is the insertion of “acting for all” which brings in the concept of agency. An amendment of substantial import carried out by the Special Committee was with the intent to elucidate clearly the fundamental principle that the partners when carrying on the business of the firm are agents as well as principals.1 Pollock & Mulla also notes the salient distinction between the meanings of ‘partnership’ and ‘firm’. Tracing from Section 4, Pollock & Mulla clarifies that the word “partnership” is used throughout the Partnership Act in the defined sense of a relationship and where the partners are referred to collectively, the word “firm” is used. It is pertinent to recall that Explanation to Section 141 of the Act provides that for the purposes of that section, a company includes a firm or other association of individuals. Nevertheless, the distinction is crucial because it lends credence to the interpretation that reference in Section 141 is as much to the partners of the firm as it is to directors of a company.
7.4 According to Pollock and Mulla, 8th Edition, the definition of partnership in Section 4 of the Partnership Act contains three elements; (i) there must be an agreement entered into by all the persons concerned; (ii) the agreement must be to share the profits of a business; and (iii) the business must be carried on by all or any of the persons concerned, acting for all. All these elements must be present before a group of associates can be held to be partners. These three elements may appear to overlap, but they are nevertheless distinct. The third element shows that the persons of the group who conduct the business do so as agents for all the persons in the group and are therefore liable to account for all. This Court while elaborating the third essential element has held that the position of a partner in the firm is thus not of a master and a servant or employer and employee which concept involves an element of subordination, but that of equality. It may be that a partner is being paid some remuneration for any special attention which he devotes but that would not involve any change of status or bring him within the definition of employee, vide Regional Director, Employees’ State Insurance Corporation vs. Ramanuja Match Industries, (1985) 1 SCC 218, Paras 4 and 9.
Partnership firm is explained
7.5 In Section 4 of the Partnership Act, it is clearly stated that persons who have entered into partnership with one another are individually called partners and collectively a firm and the name under which their business is carried out is called a firm name. Thus, while partnership is the relation between persons who have agreed to share profits of the business carried on by all or any of them acting for all, the persons are collectively called a firm and the name of the firm is the firm name which is a compendious or collective term of partnership of the partners. The said Section also clearly implies that a firm or partnership is not a legal entity, separate and distinct from its partners.
A Firm is not an entity of persons in law but merely an association of individuals and the firm mane is only a collective name of individuals
7.6 As already stated above, the firm is a compendious term not distinct of the individuals who compose the firm. In other words, partnership is merely a convenient name to carry out business by partners. Thus, a firm is not an entity of persons in law but is merely an association of individuals and firm name is only a collective name of those individuals who constitute the firm. In other words, the firm name is merely an expression, only a compendious mode of designating the persons who have agreed to carry on business in partnership.
Thus, a firm may not be a legal entity in the sense of a corporation or a company incorporated under the Companies Act, 1956 or 2013, but it is still an existing concern where business is done by a number of persons in partnership.
Partnership Firm is not a Separate Legal Personality
7.9 A partnership firm, unlike a company registered under the Companies Act, does not possess a separate legal personality and the firm’s name is only a compendious reference for describing its partners. This fundamental distinction between a firm and a company rests on the premise that the company is separate from its shareholders. In that context, the words of Lord Macnaghten in Salomon vs. Salomon & Co. Ltd., [1897] AC 22 (HL), (“Salomon”) are instructive:
“13. It was argued that the position of shareholders in a company is analogous to that of partners inter se. This analogy is wholly inaccurate. Partnership is merely an association of persons for carrying on the business of partnership and in law the firm name is a compendious method of describing the partners. Such is, however, not the case of a company which stands as a separate juristic entity distinct from the shareholders.”
7.14 Most pertinent is that despite noting these relaxations in the rigid rules of procedure, this Court observed in Dulichand that ‘a firm name is merely an expression, only a compendious mode of designating the persons who have agreed to carry on business in partnership’. Any relaxations, either aforementioned or not, borne out of commercial convenience or otherwise, do not deviate from the settled position that the name of a partnership firm is a convenient manner of referring to its partners.
Liability of Partners: the partners remain liable jointly and severally for all acts of the firm
7.19 The liability of partners for the debts of the business is unlimited and they are jointly and severally liable for all business obligations of the partnership firm. Sections 25 and 26 of the Partnership Act are relevant in this regard, which are reproduced as under:
“25. Liability of a partner for acts of the firm.—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.
26. Liability of the firm for wrongful acts of a partner.—Where, by the wrongful act or omission of a partner acting in the ordinary course of the business of a firm, or with the authority of his partners, loss or injury is caused to any third party, or any penalty is incurred, the firm is liable therefor to the same extent as the partner.”
Section 25 provides that every partner is liable jointly with all the other partners and also severally for all acts of the firm done by the partner. Since a firm is not a legal entity but only a collective name for all the partners, it does not have any legal existence apart from its partners. Therefore, any liability of a firm has the same effect of a liability against the partners. This is because, the partners remain liable jointly and severally for all acts of the firm, vide Dena Bank vs. Bikhabhai Prabhudas Parekh and Co., (2000) 5 SCC 694.
Once it is established that an illegal act has been committed by the firm or its partners, then the partners will be jointly liable for it
7.21 Insofar as criminal liability is concerned, once it is established that an illegal act has been committed by the firm or its partners, then the partners will be jointly liable for it. Moreover, the act constituting an offence will also have to be decided with reference to the statute creating such an offence i.e. the Negotiable Instruments Act, which is the Act under consideration. When Section 25 of the Partnership Act is read together with Section 145 of the Act, in the context of dishonour of a cheque, the partner of a firm who is also liable jointly with a firm, can however rebut the statutory presumption.
7.22 Conversely, Section 26 states that where by the wrongful act or omission of a partner, acting in the ordinary course of the business of a firm, or with the authority of his partners, loss or injuries are caused to any third party, or any penalties are incurred, the firm is liable therefore to the same extent as the partner. The liability of the firm for acts done by the partner would arise when such acts are done in the ordinary course of the business of the firm.
7.23 Moreover, since the firm by itself cannot transact any business, if a partner of the firm commits any breach, all the partners would become liable for the consequent penalties, just as the firm would be liable. Further, if a penalty is imposed on a partnership firm for contravention of a statute, it amounts to levy of penalty on the partners also and there is no separate or independent penalty on the partners for the said contravention.
Firm Name
8. It is therefore appropriate to remind ourselves that a partnership firm, unlike a company registered under the Indian Companies Act or a limited liability partnership registered under the Limited Liability Partnership Act, 2008, is not a distinct legal entity and is only a compendium of its partners. Even the registration of a firm does not mean that it becomes a distinct legal entity like a company. Hence, the partners of a firm are co-owners of the property of the firm, unlike shareholders in a company who are not co-owners of the property of the company.
Sections 138 and 141 N.I Act
9. The aforesaid principles have to be applied to Sections 138 and 141 of the Act. For immediate reference, the said sections are extracted as under:
“Sections 138 and 141”
9.1 Section 138 of the Act creates an offence for dishonour of a cheque for, inter alia, insufficiency of funds in the account by a deeming fiction. The complainant who is a victim of the dishonour of cheque issued by an accused has the right to file a private complaint in terms of Section 200 of the CrPC, (equivalent to Section 223 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (for short, “BNSS”)). When the said offence is proved against an individual/natural person, he is punished with imprisonment for a term which may be extended to two years or with fine which may extend to twice the amount of the cheque. But when such an offence is committed by a company, which is an artificial juristic entity, Section 141 of the Act applies. The said Section states that if the person committing an offence under Section 138 of the Act is a company, every person who at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. Since an artificial juristic entity such as a company cannot be punished with imprisonment, by a deeming fiction certain persons associated with such an artificial juristic entity are deemed to be guilty of the offence and made liable to be proceeded against and punished accordingly. This is an instance of vicarious liability on every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company. This is for the reason that a company is a separate entity vis-à-vis its shareholders or those who are in charge of the conduct of its business since a company is an artificial juristic entity. Thus, the liability would be on the company as well as on the category of persons mentioned above. Such a person must be both in charge of, as well as responsible to, the company for the conduct of the business of the company. However, the aforesaid category of person who is deemed to be guilty of the offence along with the company, can escape punishment (i) if he can prove that the offence was committed without his knowledge; or (ii) that he had exercised all due diligence to prevent the commission of such an offence. Hence, by way of a proviso to sub-section (1) to Section 141 of the Act, two defences are provided for the category of persons named in sub-section (1) of Section 141.
9.2 The second proviso to sub-section (1) of Section 141 is an exception for a person who is a director of the company who shall not be liable for prosecution under Chapter XVII of the Act. The second proviso is not relevant for the purpose of this case as the said proviso refers to ex-officio directors representing the Central Government or state governments or a financial corporation owned or controlled by the Central Government or the state government, as the case may be.
Criminal liability of the company
9.4 Thus, while under sub-section (1) of Section 141 of the Act, the criminal liability on the category of persons named in the said sub-section is owing to the position that person holds in the company, when the company is said to have committed the offence under Section 138 and therefore the deeming fiction under sub-section (2) of Section 141 of the Act, on the other hand, there has to be a proof with regard to consent or connivance for the committing of the offence or a criminal negligence on the part of the director, manager, secretary or other officer of the company who shall also be deemed to be guilty of the offence under Section 138 of the Act. Thus, under sub-section (2) of Section 141 of the Act, when the company is guilty of the offence under Section 138 of the Act, a director, manager, secretary or other officer of the company shall also be deemed to be guilty of the offence and liable to be proceeded against and punished accordingly, provided there is proof of mens rea on the part of such category of persons. Hence, a director, manager, secretary or other officer of the company cannot be proceeded against per se by virtue of the position they hold in the company but can be proceeded against only when there is proof that the offence under Section 138 was committed by the company with their consent or connivance or due to negligence on their part. The standard of proof is higher under sub-section (2) of Section 141 vis-à-vis the category of persons mentioned therein with regard to their specific role in the commission of the offence under Section 138. This implies that the primary liability of the company is transferred to the above categories of persons who are deemed to be guilty vicariously having regard to the deemed penal nature of the offence under Section 138 of the Act.
Explanation to section 141 N.I Act
9.5 The Explanation to Section 141 has two clauses. Clause (a) defines a company to mean anybody corporate and includes a firm or other association of individuals. The expression “company” encompasses, inter alia, a body corporate which refers to a company incorporated under the provisions of the Companies Act or a statutory body. The expression “company” is inclusive inasmuch as it includes a firm, meaning thereby a partnership firm, as per the provisions of the Partnership Act, as well as a limited liability partnership or other association of individuals. Clause (b) of the Explanation defines a director as mentioned in subsection (2) of Section 141 of the Act in relation to a firm to mean a partner in the firm. Thus by a legislative device an inclusive definition is added by way of an Explanation to Section 141 of the Act inasmuch as in jurisprudence and in law, a company is a distinct body corporate and separate juristic entity as compared to a partnership firm.
Though the firm is included under section 141 N.I Act within the expression of company is only a legal fiction but in any case they are liable under the law of partnership of India
9.6 On a conjoint reading of the various clauses of Section 141, what emerges is that the expression “company” has been used in an expansive way to include not just a company incorporated under the provisions of the Companies Act stricto sensu but also any body corporate such as a statutory company as well as other artificial juristic entity such as a partnership firm or other association of individuals. Hence, the expression “director” in sub-section (2) of Section 141 is not restricted to a director of an incorporated company or a statutory body, but also includes a partner of a firm. The expression “director” in sub-section (2) of Section 141 of the Act in relation to a firm means a partner, which is also a legislative device adopted by the Parliament knowing fully well and being conscious of the fact that a partnership firm, jurisprudentially speaking, does not stand on par with a director of a body corporate. Since the Parliament has used the expression “company” encompassing all types of juristic persons, it was necessary to give an expanded definition to the expression “director” in relation to a firm to mean a partner in the firm. Therefore, the inclusion of a firm within the meaning of the expression “company” is by a legal fiction and by way of a legislative device only for the purpose of creating a liability on the partners of the firm, which in any case, they are liable under the law of partnership in India. But the definition of the word company including a partnership firm has been incorporated in the Explanation for the sake of convenience, as otherwise a similar provision would have to be inserted for the very same purposes. Instead of replicating the same definition for different kinds of juristic entities, the Parliament has thought it convenient to add an Explanation to define a company for the purpose of Section 141 of the Act in the context of an offence committed by, inter alia, a company, as understood within the meaning of the Companies Act, and also include a firm or other association of individuals within the definition of company. Similarly, under clause (b) of the explanation, the expression “director”, in relation to a firm, means a partner in the firm.
When a firm commits an offense it is essentially committed by the partners, not just the firm itself
9.7 This also demonstrates the fact that while a director is a separate persona in relation to a company, in the case of a partnership firm, the partner is not really a distinct legal persona. This is because a partnership firm is not really a legal entity separate and distinct as a company is from its directors but can have a legal persona only when the partnership firm is considered along with its partners. Thus, the partnership firm has no separate recognition either jurisprudentially or in law apart from its partners. Therefore, while a director of a company can be vicariously liable for an offence committed by a company, insofar as a partnership firm is concerned, when the offence is committed by such a firm, in substance, the offence is committed by the partners of the firm and not just the firm per se. Therefore the partners of the firm are liable for the dishonour of a cheque, even though the cheque may have been issued in the name of the firm and the offence is committed by the firm. Therefore, in law and in jurisprudence, when a partnership firm is proceeded against, in substance, the partners are liable and the said liability is joint and several and is not vicarious. This is unlike a company which is liable by itself and since it is an artificial juristic entity, the persons in charge of the affairs of the company or who conduct its business only become vicariously liable for the offence committed by the company.
If a partnership firm is liable for the offence under Section 138 of the Act, it would imply that the liability would automatically extend to the partners of the partnership firm jointly and severally
9.8 However, jurisprudentially speaking, the partners of a partnership firm constitute the firm and a firm is a compendious term for the partners of a firm. This is opposed to the position of a director in a company which is a body corporate stricto sensu and such a company is a separate juristic entity vis-à-vis the directors. On the other hand, a partnership firm has no legal recognition in the absence of its partners. If a partnership firm is liable for the offence under Section 138 of the Act, it would imply that the liability would automatically extend to the partners of the partnership firm jointly and severally. This underlying distinction between a partnership firm and a company which is a body corporate has to be borne in mind while dealing with an offence committed by a company or a partnership firm, as the case may be, within the meaning of Section 138 read with Section 141 of the Act. To reiterate, in the case of a partnership firm, there is no concept of vicarious liability of the partners as such. The liability is joint and several because a partnership firm is the business of partners and one cannot proceed against only the firm without the partners being made liable.
Even Partnership Firm not named as accused the partners are jointly and severally liable with the firm and the complaint is maintainable
9.9 Therefore, even in the absence of partnership firm being named as an accused, if the partners of the partnership firm are proceeded against, they being jointly and severally liable along with the partnership firm as well as inter-se the partners of the firm, the complaint is still maintainable. The accused in such a case would in substance be the partners of the partnership firm along with the firm itself. Since the liability is joint and several, even in the absence of a partnership firm being proceeded against by the complainant by issuance of legal notice as mandated under Section 138 of the Act or being made an accused specifically in a complaint filed under Section 200 of CrPC, (equivalent to Section 223 of the BNSS), such a complaint is maintainable.
Criminal liability of company and partnership firm under section 141 explained in detail
9.10 Thus, when it is a case of an offence committed by a company which is a body corporate stricto sensu, the vicarious liability on the categories of persons mentioned in sub-section (1) and sub-section (2) of Section 141 of the Act accordingly would be proceeded against and liable for the offence under Section 138 of the Act. In the case of a partnership firm on the other hand, when the offence has been proved against a partnership firm, the firm per se would not be liable, but liability would inevitably extend to the partners of the firm inasmuch as they would be personally, jointly and severally liable with the firm even when the offence is committed in the name of the partnership firm.
9.11 To reiterate, when the partnership firm is only a compendious name for the partners of the firm, any offence committed under Section 138 read with Section 141 of the Act would make the partners of the firm jointly and severally liable with the firm. If, on the other hand, the Parliament intended that the partners of the firm be construed as separate entities for the purpose of penalty, then it would have provided so by expressly stating that the firm, as well as the partners, would be liable separately for the offence under Section 138 of the Act. Such an intention does not emanate from Section 141 of the Act as the offence proved against the firm would amount to the partners of the firm also being liable jointly and severally with the firm. Therefore, there is no separate liability on each of the partners unless subsection (2) of Section 141 applies, when negligence or lack of bona fides on the part of any individual partner of the firm has been proved.
Conclusion
High court dismissing the complaint for want of partnership firm was not arraigned as accused in the complaint under section 138 N.I Act is not right
10. In view of the aforesaid discussion, we hold that the High Court was not right in rejecting or dismissing the complaint for the reason that the partnership firm was not arraigned as an accused in the complaint or that notice had not been issued to it under Section 138 of the Act. In view of the aforesaid discussion, the notice issued to the partners of the firm in the instant case shall be construed to be a notice issued to the partnership firm also viz., ‘Mouriya Coirs’. Permission is granted to arraign the partnership firm as an accused in the complaint.
11. Consequently, the impugned order of the High Court is set aside. The complaint bearing STC No.1106/2022 is restored on the file of the Court of the learned Judicial Magistrate No. II, Pollachi. The trial court is directed to dispose of the complaint in accordance with law.
12. The appeal is allowed in the aforesaid terms.
The judgments cited
1. Aneeta Hada vs. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661
2. State of Madras vs. C.V. Parekh, (1970) 3 SCC 491
3. Sheoratan Agarwal vs. State of M.P., (1984) 4 SCC 352
4. Anil Hada vs. Indian Acrylic Ltd., (2000) 1 SCC 1
5. U.P. Pollution Control Board vs. Modi Distillery, (1987) 3 SCC 684
6. Dilip Hariramani vs. Bank of Baroda, 2022 SCC OnLine SC 579
7. G. Ramesh vs. Kanike Harish Kumar Ujwal, (2020) 17 SCC 239
8. Bacha F. Guzdar vs. CIT, (1954) 2 SCC 563
9. Dulichand Laksminarayan vs. CIT, AIR 1956 SC 354
10. Bhagwanji Morarji Goculdas Company Ltd., AIR 1948 PC 100
11. CIT vs. R.M. Chidambaram Pillai, (1977) 1 SCC 431
12. Addanki Narayanappa vs. Bhaskara Krishtappa, AIR 1966 SC 1300
13. Regional Director, Employees’ State Insurance Corporation vs. Ramanuja Match Industries, (1985) 1 SCC 218
14. Narayanappa vs. Bhaskara Krishtappa, AIR 1966 SC 1300 (referred again)
Acts and Sections involved
The case involves the Negotiable Instruments Act, 1881, particularly Section 138, which deals with the offence of dishonour of cheque for insufficiency of funds. Section 141 of the same Act addresses offences by companies and includes a legal fiction that a “company” includes a partnership firm, and defines a “director” in relation to a firm as a partner, extending liability to partners of the firm.
The Indian Partnership Act, 1932 is also relevant, especially Section 4, which defines “partnership,” “partner,” “firm,” and “firm name”. Sections 25 and 26 of the Partnership Act establish that partners are jointly and severally liable for acts of the firm and that the firm is liable for wrongful acts or omissions of a partner done in the ordinary course of business. Section 42, which deals with dissolution of a partnership firm, is also referenced.
Additionally, the Code of Criminal Procedure, 1973 (CrPC) is involved concerning the filing of complaints under Section 200, equivalent to Section 223 of the Bharatiya Nagarik Suraksha Sanhita, 2023.
Party
Dhanasingh Prabhu vs. Chandrasekar & Another – Criminal Appeal No. 2994 of 2025 (Arising out of Special Leave Petition (Criminal) No.5706 of 2024) – 2025 INSC 831 – July 14, 2025 Hon’ble Mrs. Justice B.V. Nagarathna and Hon’ble Mr. Justice Satish Chandra Sharma.
