2020 (10) TMI 575 - HC - Indian Laws

Dishonor of Cheque - maintaining prosecution under section 141 of N.I. Act for arraining the company as an accused - main contention of the petitioner is that the prosecution could not launch unless and until the firm arraign as accused - whether in sole proprietorship firm indictment of firm arraign as parties is necessary or not? - HELD THAT - The phrase association of individuals necessarily requires such entity to be constituted by two or more individuals i.e. natural persons. On the contrary a sole-proprietorship concern, by very description does not allow for ownership to be shared or be joint and it defines, restricts and dictates the ownership to remain with one person only. Thus, associations of individuals are absolutely opposed to sole-proprietorship concerns, in that sense and aspect - A 'partnership' on the other hand is a relationship formed between persons who willfully form such relationship with each other. In the context of an offence under section 138 of the Act, by virtue of Explanation (b) to section 141 of the Act, only a partner of a 'firm' has been artificially equated to a 'director' of a 'company'. Its a legal fiction created in a penal statute. It must be confined to the limited to the purpose for which it has been created. Thus a partner of a 'firm' entails the same vicarious liability towards his 'firm' as 'director' does towards his 'company', though a partnership is not an artificial person. So also, upon being thus equated, the partnership 'firm' and its partner/s has/have to be impleaded as an accused person in any criminal complaint, that may be filed alleging offence committed by the firm. However, there is no indication in the statute to stretch that legal fiction to a sole proprietary concern - Besides, in the case of a sole proprietary concern, there are no two persons in existence. Therefore, no vicarious liability may ever arise on any other person. The identity of the sole proprietor and that of his 'concern' remain one, even though the sole proprietor may adopt a trade name different from his own, for such 'concern'. The principle contained in section 141 of the Act is not applicable to a sole-proprietary concern. The petitioner taken the money in advance by way of loan and petitioner handed over the cheques bearing no. 850213 850214 amount of ₹ 50,000/- each only for the security for payment of money advance by way of loan. So the transaction of money and cheques not in the prosecution of business of firm but cheques handed over by petitioner to Nepal Singh in individual capacity. So due to aforesaid reason too no need to implead the sole proprietor firm by his firm name - there is no illegality or irregularity in the orders. Petition dismissed.

Issues:
Challenge to impugned orders under Section 227 of Constitution regarding summoning order and proceedings in a complaint under Section 138 of Negotiable Instruments Act, 1881.

Analysis:

1. Impugned Orders Challenge:
The petitioner sought to set aside orders passed by Additional Court No. 3, Agra and Additional Sessions Judge, Court No. 17, Agra. The summoning order dated 28.3.2012 in Complaint No. 1500 of 2011 under Section 138 of Negotiable Instruments Act was challenged.

2. Legal Basis of Complaint:
The respondent alleged that the petitioner borrowed money and issued dishonored cheques. The petitioner contended that the firm, M/s Rashmi Arosole & Chemicals, should have been arraigned as an accused under Section 138 of the Act.

3. Interpretation of Section 138:
The petitioner argued that as the proprietor of the firm, he cannot be prosecuted unless the firm is also accused. Reference was made to Section 138 and the Supreme Court judgment in Aneeta Hada Vs. M/s Godfather Travels & Tours Pvt. Ltd.

4. Prosecution Requirement:
The petitioner emphasized that for prosecution under Section 141 of the Act, the company or firm must be arraigned as an accused. The judgment in Devendra Kumar Garg Vs. State of U.P. was cited to support this argument.

5. Prosecution Opposition:
The State argued that the cheques were drawn by the petitioner personally for security, not in the firm's capacity, hence the firm need not be implicated.

6. Court's Analysis:
The court noted that the cheques were drawn by the petitioner and he admitted to signing them. The main contention was whether the firm needed to be accused as well.

7. Section 141 Interpretation:
Section 141 clarifies that in case of an offense by a company, individuals responsible for the conduct of the business are deemed guilty. However, for a sole proprietorship firm, the indictment of the firm as a party may not be necessary.

8. Sole Proprietorship Clarification:
The court differentiated between an association of individuals and a sole proprietorship, highlighting that in the latter, no separate legal identity exists apart from the proprietor.

9. Liability Clarification:
The judgment emphasized that in a sole proprietorship, no vicarious liability arises on another person, as the sole proprietor and the concern are one entity.

10. Conclusion:
The court found no defect in the complaint against the petitioner as the sole proprietor of the firm. It concluded that there was no need to implicate the firm separately or the petitioner by his trade name.

11. Dismissal of Petition:
Based on the analysis, the court dismissed the petition, stating that there was no illegality in the impugned orders, and no interference was warranted.

12. Final Decision:
The petition lacked merit and was consequently dismissed by the court.

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