2019 (7) TMI 2041 - HC - Indian Laws

Dishonour of Cheque - whether an unregistered Partnership Firm can also be brought within the purview of Section 141 of the Negotiable Instruments Act, and in such cases whether the Partnership Firm must be made as an accused along with the other partners, in order to maintain a complaint for an offence under Section 138 of the Negotiable Instruments Act? - HELD THAT - The Hon'ble Supreme Court in Aneeta Hada .Vs. Godfather Travels and Tours Private Limited 2012 (5) TMI 83 - SUPREME COURT , has now settled the law to the effect that a complaint under Section 138 of the Negotiable Instruments Act, cannot be maintained without issuing a statutory notice to the Company and without adding the Company as an accused, only as against the directors of the Company. The same law has been made applicable even to the partnership firm in N. Elangovan .Vs. C. Ganesan 2014 (10) TMI 1056 - MADRAS HIGH COURT . The action under Section 138 of the Negotiable Instruments Act, is not a Suit to enforce a right arising out of a contract, and therefore, the bar under Section 69(2) of the Partnership Act will not operate in such a case. The word Suit envisaged under Section 69(2) of the Indian Partnership Act, cannot be stretched to criminal prosecutions. A criminal prosecution by its very nature is instituted not for recovery of money or for enforcement of any security. Section 138 of Negotiable Instruments Act is a penal provision, the commission of which offence entails a conviction and sentence on the proof of guilt. Chapter XVII of the Negotiable Instruments Act, 1881 is a code by itself which deals with penalties in case of dishonour of cheques. Section 141 of the Negotiable Instruments Act deals with the concept of vicarious liability, wherein for the offence committed by the Company or a partnership firm, the directors or the partners, as the case may, are deemed to be guilty of the offence when it is shown that they are in charge of and responsible for the conduct of the day-to-day affairs of the business or the firm, as the case may be. While interpreting the provision, the Hon'ble Supreme Court has categorically held that the complaint cannot be maintained against the directors of the Company, without making the company as an accused person. This concept has been extended even for Partnership Firms. The registration or non-registration of the Partnership Firm will have no bearing insofar as 141 of the Negotiable Instruments Act is concerned. This Court is not in agreement with the submissions made by the learned counsel for the respondent. In this case admittedly, the cheque was given in the name of the Partnership Firm and after the cheque was dishonored, no statutory notice was issued to the Partnership Firm, and the Partnership Firm was not made as an accused in the complaint. Only the partners have been shown as accused persons in this complaint. Such a complaint is unsustainable and not in accordance with Section 141 of the Negotiable Instruments Act. Petition allowed.

Summary

Issues Involved:

1. Whether an unregistered Partnership Firm can be brought within the purview of Section 141 of the Negotiable Instruments Act.
2. Whether the Partnership Firm must be made an accused along with the partners to maintain a complaint for an offence under Section 138 of the Negotiable Instruments Act.

Issue-wise Detailed Analysis:

1. Unregistered Partnership Firm and Section 141 of the Negotiable Instruments Act:

The primary issue in this case is whether an unregistered Partnership Firm can be considered under Section 141 of the Negotiable Instruments Act. The petitioners argued that the provisions of Section 141, which deal with offences by companies, should equally apply to partnership firms, based on the explanation provided under the same section. They contended that the Hon'ble Supreme Court has established that a complaint under Section 138 cannot be maintained against directors without making the company an accused, and this principle should extend to partnership firms. The respondent, however, argued that Section 141 applies only to registered firms that satisfy the requirements of a legal entity. Since the firm in question was unregistered, the respondent proceeded to file the complaint against the partners directly. The court relied on previous judgments, including those from the Kerala and Allahabad High Courts, which clarified that the effect of non-registration under Section 69 of the Partnership Act is applicable only to civil rights and not to criminal cases. Therefore, the bar under Section 69(2) of the Partnership Act does not apply to criminal prosecutions under Section 138 of the Negotiable Instruments Act.

2. Requirement to Make the Partnership Firm an Accused:

The second issue is whether the partnership firm must be made an accused along with the partners to maintain a complaint under Section 138. The petitioners argued that without making the firm an accused, the complaint against the partners alone is unsustainable. The court examined the legal framework and precedents, including the Supreme Court's decision in Aneeta Hada vs. Godfather Travels and Tours Private Limited. It was established that a complaint cannot be maintained against directors without making the company an accused. This principle extends to partnership firms, as confirmed in N. Elangovan vs. C. Ganesan. The court reiterated that the registration status of the firm is immaterial for Section 141 of the Negotiable Instruments Act. In this case, since the cheque was issued in the name of the partnership firm, and no statutory notice was issued to the firm nor was it made an accused, the complaint against the partners alone is not maintainable. The court concluded that the proceedings were unsustainable and quashed the complaint, emphasizing that the law requires the partnership firm to be included as an accused for the complaint to be valid under Section 141.

The court's decision underscores the importance of adhering to procedural requirements when dealing with offences under the Negotiable Instruments Act, particularly concerning the inclusion of the legal entity as an accused in cases involving partnership firms.