2020 (4) TMI 552 - HC - Indian Laws

Interpretation of statute - Dishonor of cheque - enforcement of legal liability towards in Unregistered partnership firm - complaint filed by an unregistered firm u/s 138 - prosecution of accused under Section 138 of the Negotiable Instruments Act, 1888 - Whether prosecution of accused, is hit by the bar created by sub-section (2) of Section 69 of the Indian Partnership Act, 1932? - HELD THAT - Section 138 of the N.I. Act is a penal provision, the commission of which entails prosecution and conviction on proving of guilt. Once the offence under Section 138 of the N.I. Act is completed, the prosecution can be initiated for bringing the offender to penal liability. There is no disagreement with the proposition that the 'debt or other liability' as has been referred in Section 138 of the N.I. Act, is a 'legally enforceable debt or other liability' - However, by creating a bar to enforce a right arising out of contract by an unregistered firm, with the object to promote registration of the firms and to exempt the small firms from compulsory registration, the inherent character of enforceability of the 'right' does not get changed and it would still remain as a right enforceable by law. Once the bar is removed, the remedy would be revived. Moreover, even the plaintiff/unregistered firm can withdraw the suit with liberty to file a fresh one after getting the firm registered and section 14 of the Limitation Act, 1963 would be applicable to such proceedings. Thus, there is no point in stretching the bar which is in the nature of temporary bar to the suit to the complaints under section 138 of the N. I. Act, which is in the nature of penal provision with the object to inculcate faith in banking transactions - The prosecution of an accused under Section 138 of the Negotiable Instruments Act, 1888, is not hit by the bar created by sub-section (2) of Section 69 of the Indian Partnership Act, 1932. The matter be placed before the appropriate Bench.

Summary

Issues:
Interpretation of Section 138 of the Negotiable Instruments Act, 1888 in relation to the bar under Section 69(2) of the Indian Partnership Act, 1932.

Analysis:
The judgment in question revolves around the interpretation of the relationship between Section 138 of the Negotiable Instruments Act, 1888 (N.I. Act) and the bar created by Section 69(2) of the Indian Partnership Act, 1932 (Act of 1932). The issue arose from conflicting views expressed by different courts regarding the maintainability of a complaint filed by an unregistered firm under Section 138 of the N.I. Act due to the bar under Section 69(2) of the Act of 1932.

The Single Bench of the Bombay High Court in Sai Accumulator Industries v. Sethi Brothers held that such a complaint is not tenable in law. However, a referral Judge expressed a different view, leading to the matter being referred to a larger Bench for consideration. The crux of the argument lies in whether the bar under Section 69(2) of the Act of 1932 applies to prosecutions under Section 138 of the N.I. Act.

The legal counsels presented contrasting arguments, with the applicant's counsel citing precedents from various High Courts supporting the maintainability of prosecutions under Section 138 of the N.I. Act. On the other hand, the respondent's counsel supported the view of the Single Judge in Sai Accumulator case. The discussion delved into the interpretation of relevant legal provisions and past judgments to ascertain the correct application of the law in this context.

The judgment extensively analyzed the legislative intent behind Section 69(2) of the Act of 1932, emphasizing the promotion of firm registration and the enforcement of contractual obligations. The court differentiated between civil suits and criminal prosecutions, highlighting the penal nature of Section 138 of the N.I. Act aimed at instilling confidence in banking transactions.

Moreover, the judgment clarified that the bar under Section 69(2) of the Act of 1932 pertains to contractual obligations and does not extend to statutory rights or protections under other laws. The court's decision aligned with the view expressed by the referral Judge, concluding that the prosecution of an accused under Section 138 of the N.I. Act is not hindered by the bar under Section 69(2) of the Act of 1932.

In essence, the judgment reconciled the interplay between the provisions of the N.I. Act and the Act of 1932, ensuring that the enforcement of penal liabilities under Section 138 remains unaffected by the registration status of the firm. The comprehensive analysis provided clarity on the legal principles governing such cases and resolved the conflicting interpretations prevalent in previous judgments.