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2025 (4) TMI 1104 - HC - Indian LawsDishonour of Cheque - cheque issued as proprietor in discharge of part of admitted legal liability/debt incurred on account of business transactions - separate identity of a sole proprietor firm - HELD THAT - It is well settled law that a sole proprietor firm has no separate identity and the sole proprietor will be responsible for the same. The Hon ble S upreme Court in Raghu Lakshminarayanan v. Fine Tubes 2007 (4) TMI 367 - SUPREME COURT had observed and held A proprietary concern is not a company. Company in terms of the Explanation appended to Section 141 of the Negotiable Instruments Act means any body corporate and includes a firm or other association of individuals. Director has been defined to mean in relation to a firm a partner in the firm. Thus whereas in relation to a company incorporated and registered under the Companies Act 1956 or any other statute a person as a Director must come within the purview of the said description so far as a firm is concerned the same would carry the same meaning as contained in the Partnership Act. In the present case the subject cheque has been issued by the present petitioner for M/s Coal Corporation and the statutory legal demand notice dated 03.06.2016 was also sent to the petitioner the authorised signatory for M/s Coal Corporation and the trial before the learned Trial Court is still pending. It is pertinent to note that nothing has been placed on record to show that the account from which the subject cheque was issued belong to a partnership firm. In absence of the same and in view of petitioner himself admitting in the reply to the legal demand notice being Proprietor of M/s Coal Corporation no grounds for interference are made out at this stage. The petitioner will have ample opportunity to demonstrate that subject cheque was issued by partnership firm as claimed during the course of trial - this Court is of the considered opinion that the complaint case instituted at the behest of the respondent/complainant cannot be quashed at this stage. Conclusion - i) The complaint case under Section 138/142 NI Act against the petitioner in his capacity as proprietor of M/s Coal Corporation is maintainable. ii) The complaint case instituted at the behest of the respondent/complainant cannot be quashed at this stage. Petition dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court were:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1 and 2: Whether the complaint is liable to be quashed for non-impleading the partnership firm and mischaracterizing the petitioner's capacity Legal framework and precedents: Section 138 read with Section 142 of the NI Act deals with dishonour of cheque for insufficiency of funds and the liability of persons responsible. Section 141 extends vicarious liability to directors, partners, or persons in charge of the company or firm. The Supreme Court in Dilip Hariramani v. Bank of Baroda clarified that vicarious liability under Section 141 arises only if the company or firm commits the offence as the principal offender. A proprietary concern is distinct from a partnership firm or company, as held in Raghu Lakshminarayanan v. Fine Tubes (2007) 5 SCC 103, where the sole proprietor is personally responsible and the firm has no separate legal identity. Court's interpretation and reasoning: The Court observed that the petitioner was arrayed as proprietor of M/s Coal Corporation in the complaint, whereas the petitioner contended that the entity is a registered partnership firm and he is only a partner. The petitioner relied on the partnership deed and Registrar of Firms' Form-G to establish this. However, the Court noted that the complaint and legal demand notice described the petitioner as proprietor of M/s Coal Corporation, and the petitioner himself replied to the legal demand notice in that capacity. The Court emphasized that a sole proprietorship has no separate legal identity, and the proprietor is personally liable. The Court distinguished the present case from Dilip Hariramani, where the accused was not shown to be in charge of the firm's affairs and no legal demand notice was issued to him. Key evidence and findings: The petitioner's reply to the legal demand notice explicitly referred to him as proprietor of M/s Coal Corporation. No evidence was placed on record to show that the cheque was drawn on a partnership firm's account. The trial is ongoing, and the complaint has been taken cognizance of by the Magistrate. Application of law to facts: Since the petitioner himself admitted to being the proprietor in the reply to the legal demand notice and issued the cheque in that capacity, the Court held that the complaint was maintainable against him personally. The omission to array the partnership firm as accused was not fatal at this stage, especially as the petitioner had not raised this ground in response to the demand notice. Treatment of competing arguments: The petitioner's argument that the complaint should be quashed for non-impleading the partnership firm was rejected because the petitioner had accepted liability as proprietor in the legal demand notice reply. The respondent's submission that the trial was ongoing and the petitioner had not challenged his capacity at the earliest opportunity was accepted. Conclusions: The complaint case cannot be quashed merely on the ground that the petitioner is a partner and not proprietor, particularly when he himself responded as proprietor and issued the cheque in that capacity. Issue 3: Applicability of Section 141 NI Act and vicarious liability principles Legal framework and precedents: Section 141 NI Act imposes vicarious liability on persons in charge of the company or firm when the company or firm commits the offence as principal offender. The Supreme Court in Dilip Hariramani clarified that such liability arises only when the company or firm is the primary offender. Court's interpretation and reasoning: The Court held that since the petitioner issued the cheque in his own capacity as proprietor, and not merely as a partner of a firm, the case does not fall under the vicarious liability regime of Section 141. The petitioner's reliance on Dilip Hariramani was found misplaced because the facts differ: in Dilip Hariramani, the accused was not shown to be in charge or responsible for the firm's affairs and was not served with a legal demand notice. Key evidence and findings: The petitioner's reply to the legal demand notice and the cheque issuance itself indicated personal liability rather than vicarious liability as a partner. Application of law to facts: The Court applied the principle that vicarious liability under Section 141 presupposes the firm or company as principal offender, which is not established here. Treatment of competing arguments: The petitioner's attempt to invoke Section 141 as a defense was rejected since the petitioner's role was not merely as a partner but as proprietor issuing the cheque. Conclusions: Section 141 does not provide a shield to the petitioner in the present facts. Issue 4: Whether the complaint can be quashed at the stage of trial Legal framework: Quashing under Section 482 CrPC is an extraordinary remedy, generally not granted where trial is ongoing and evidence is yet to be tested. Court's reasoning: The Court noted that the trial is pending before the learned Trial Court with cross-examination of complainant's witness yet to be conducted. It held that the complaint cannot be quashed solely on the ground of non-impleading the partnership firm at this stage, especially when the petitioner had accepted liability in the reply to the demand notice. Application of law to facts: Given the ongoing trial and the petitioner's admission of capacity, the Court declined to quash the complaint. Conclusions: The petition for quashing was dismissed. 3. SIGNIFICANT HOLDINGS The Court held:
Core principles established include the distinction between a sole proprietorship and a partnership firm under the NI Act, the requirement that vicarious liability under Section 141 arises only when the firm or company is the principal offender, and the procedural principle that a complaint should not be quashed at the threshold where trial is ongoing and the accused has admitted liability in the capacity alleged. Final determinations:
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