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2017 (4) TMI 874 - HC - Indian LawsProsecution of offence alleged by virtue of Section 141 of the Negotiable Instruments Act - Held that - The provisions of Section 138 of the Negotiable Instruments Act are enacted taking into consideration the currency of cheques for a period of six months from the date of issue or the reduced period of validity, whichever is earlier. Therefore, this provision of the Negotiable Instruments Act contemplates cheque with lesser period of validity than six months, which is the general banking practice and stipulates that the cheque should be presented for encashment either within the period of six months or within the period of validity of the cheque, whichever is earlier. Hence, a cheque, which is issued with the reduced validity period, has to be presented for encashment within the expiry of that period so as to attract the provisions of Section 138 of the Negotiable Instruments Act. Indisputably, in the case on hand, the cheque was presented by the complainant for encashment after the expiry of currency of three months and in such circumstances, the provisions of Section 138 of the Negotiable Instruments Act are not attracted in this case in view of Clause (a) of the proviso to Section 138 of the Negotiable Instruments Act.
Issues Involved:
1. Whether a partnership firm is a legal entity like a company under Section 138 of the Negotiable Instruments Act. 2. Whether the prosecution of partners is maintainable in the absence of the partnership firm being impleaded as an accused. 3. Whether the validity period of the cheques affects the applicability of Section 138 of the Negotiable Instruments Act. Issue-wise Detailed Analysis: 1. Legal Entity Status of Partnership Firms: The court examined whether a partnership firm is considered a legal entity similar to a company under Section 138 of the Negotiable Instruments Act. The court referred to various precedents, including the Supreme Court's decision in Munshi Ram, Mahabir Cold Storage, Comptroller and Auditor General, Bacha F. Guzdar, and V. Subramaniam, which consistently held that a partnership firm is not a distinct legal entity but a compendium of its partners. The court concluded that a partnership firm, unlike a company, is not a separate legal entity under the Indian Partnership Act, 1932, and thus, the partners are co-owners of the firm's property. 2. Prosecution of Partners Without Impleading the Firm: The court addressed whether partners can be prosecuted under Section 138 of the Negotiable Instruments Act without the partnership firm being impleaded as an accused. The court noted that Section 141 of the Act provides for the constructive liability of individuals in charge of and responsible for the conduct of the company's business. The court emphasized that the term "company" in Section 141 includes a firm or other association of individuals, and "director" in relation to a firm means a partner in the firm. However, the court held that only the drawer of the cheque can be held responsible for its dishonour, and vicarious liability under Section 141 can only be fastened if the firm is a legal entity. Therefore, the prosecution of partners without impleading the firm is not maintainable. 3. Validity Period of Cheques: The court considered the issue of the validity period of the cheques and its impact on the applicability of Section 138 of the Negotiable Instruments Act. The court referred to the proviso to Section 138(a) of the Act, which requires that the cheque be presented within six months from the date it is drawn or within the period of its validity, whichever is earlier. The court noted that the Reserve Bank of India (RBI) had reduced the validity period of cheques from six months to three months through a notification. The court held that the provisions of Section 138 contemplate cheques with a reduced validity period, and the cheque must be presented within the expiry of that period to attract the provisions of Section 138. In this case, the cheques were presented after the expiry of the three-month validity period, and therefore, the provisions of Section 138 were not applicable. Conclusion: The court allowed the applications and quashed the proceedings of the Criminal Cases Nos. 1076 of 2015 and 1075 of 2015 pending in the Court of the learned Judicial Magistrate First Class, Dhanera, District: Banaskantha. The court ruled that the prosecution of the partners was not maintainable without impleading the partnership firm and that the cheques were presented after the expiry of their validity period, rendering Section 138 inapplicable.
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