2025 (1) TMI 129 - HC - Indian Laws

Dishonour of Cheque - Hindu Undivided Family (HUF) can be considered an association of individuals under Section 141 of the NI Act - Applicant is actively participating into the affairs of the Accused No. 1. or not - vicarious liability of members of HUF - HELD THAT - The discussion of the Supreme Court in the said Ramanlal Patel 2008 (2) TMI 859 - SUPREME COURT is with reference to the definition of joint family and person as defined under the Gujarat Ceiling Act. The said discussion will not apply to the explanation of the term Company as given in Section 141 of the NI Act - the Supreme Court was considering the scope of Section 3 of the Income Tax Act, 1922, which classifies the assessee under the heads individuals , Hindu Undivided Families , Companies , Local Authorities , Firms and Other Associations of Persons . The Supreme Court has observed that if Hindu undivided family is to be considered as an association of persons, there was no point in making separate provision for the assessment of Hindu Undivided Family . Thus, the said decision of the Supreme Court interpreting Section 3 of the Income Tax Act, 1922 will have no application to Section 141 of the NI Act. It is well-settled that the decision of a High Court will have the force of binding precedent only in the State or territories on which the court has jurisdiction. In other States or outside the territorial jurisdiction of that High Court it may, at best, have only persuasive effect. By no amount of stretching of the doctrine of stare decisis, can judgment of one High Court be given the status of a binding precedent so far as other High Courts or Courts or Tribunals within their territorial jurisdiction are concerned. Conclusion - The term 'association of individuals' will include Hindu Undivided Family of which the business is said to be a joint concern. The Criminal Application is dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the Applicant (Accused No. 3) can be held liable under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) for the dishonor of a cheque issued by a Hindu Undivided Family (HUF).
Whether a Hindu Undivided Family (HUF) can be considered an "association of individuals" under Section 141 of the NI Act, thereby making its members liable for offenses committed by the HUF.
Whether the complaint contains the necessary averments to hold the Applicant liable under Section 141 of the NI Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Liability of Applicant under Section 138 of the NI Act

Relevant Legal Framework and Precedents: Section 138 of the NI Act pertains to the dishonor of cheques for insufficiency of funds. Section 141 extends liability to individuals in charge of and responsible for the conduct of business of the company or association at the time of the offense.
Court's Interpretation and Reasoning: The court examined whether the Applicant, as a member of the HUF, was actively involved in the business and thus liable under Section 138. It considered the complaint's averments and the Applicant's role in the HUF.
Key Evidence and Findings: The complaint alleged that the Applicant was actively participating in the day-to-day affairs of the HUF, which issued the dishonored cheque.
Application of Law to Facts: The court applied the principles from S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, which requires specific averments in the complaint about the accused's role and responsibility in the business.
Treatment of Competing Arguments: The Applicant argued reliance on the Gujarat High Court's decision in Shah Nitinkumar, which held that an HUF cannot be considered an "association of individuals." The Respondent countered with the Bombay High Court's decision in Dadasaheb Rawal, which included HUFs under Section 141.
Conclusions: The court concluded that the complaint contained the necessary averments and that the Applicant could be held liable under Section 138 of the NI Act.

Issue 2: HUF as an "Association of Individuals" under Section 141

Relevant Legal Framework and Precedents: Section 141 of the NI Act includes "association of individuals" in its explanation of entities liable for offenses. The court considered various precedents, including the Supreme Court's decision in S.M.S. Pharmaceuticals and the Bombay High Court's decision in Dadasaheb Rawal.
Court's Interpretation and Reasoning: The court interpreted "association of individuals" to include HUFs, based on the inclusive nature of the definition in Section 141.
Key Evidence and Findings: The court found that the Applicant was actively involved in the HUF's business, making her liable under Section 141.
Application of Law to Facts: The court applied the inclusive definition of "association of individuals" to the HUF, considering the Applicant's involvement in the business.
Treatment of Competing Arguments: The court disagreed with the Gujarat High Court's interpretation in Shah Nitinkumar, favoring the Bombay High Court's broader interpretation in Dadasaheb Rawal.
Conclusions: The court concluded that an HUF could be considered an "association of individuals" under Section 141, making its members liable for offenses.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The term 'association of individuals' will include Hindu Undivided Family of which the business is said to be a joint concern."
Core Principles Established: The court established that members of an HUF can be held liable under Section 138 of the NI Act if they are actively involved in the business. It also affirmed that HUFs could be considered "associations of individuals" under Section 141.
Final Determinations on Each Issue: The court dismissed the Applicant's challenge, upholding the issuance of process against her under Section 138 of the NI Act, based on her active participation in the HUF's business.

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