2022 (1) TMI 752 - HC - Indian Laws

Dishonor of Cheque - initiation of proceedings under Section 138 of the N.I. Act against petitioner, without joining the Partnership Firm - whether partnership firm has to be made a party to the proceedings, in view the provisions of Section 141 of the Act? - HELD THAT - Undisputed facts are that the cheques were issued by the partnership firm, the present petitioner is the signatory to the cheque as an authorized partner and the transaction of purchase of land was for the firm. Section 141 of the N.I. Act provides for the constructive liability on the person responsible for the conduct of the business of the company or partnership firm. Section 141 describes about the offences by the Company. The explanation to Section 141 giving the meaning to Company means any body corporate and includes a firm or other association of individuals, further director , in relation to a firm, means a partner in the firm. The petitioner is before this Court challenging the proceedings against him under Section 138 of the N.I. Act contending that the firm has not been joined in the criminal proceedings. The deeming provision under Section 141 of the Act applies to the Company and person responsible for the acts of the Company. Section 141 clarifies that the company would mean any body corporate and would include a firm and directors , in relation to firm, would also means a partners in the firm. Section 141 clearly stipulates that the person which is a Company commits offence then certain categories of person as provided therein, as well as the Company would be deemed to be liable for the offences under Section 138 of the N.I. Act. Explanation to Section 141 thus makes deeming fiction applicable in the case of partnership firm too, which gets included in the meaning of the Company for the purpose of Section 141 of the N.I. Act. The effect of the Section 141 is that Company is principal offender under Section 138 of the Act and remaining persons are made offender by virtue of legal fiction created by the legislature as per the Section. Thus actual offence should have been committed by the Company then alone the other categories of persons would become liable for the offences - in the present case though the name of the firm has been reflected in the cause title showing petitioner as partner of the firm, but the firm has not been separately, in individual capacity, made a party to the proceedings. The petitioner has been joined as a partner to the firm without impleading the firm in the criminal proceedings, which is not tenable. The petition deserves to be allowed and stands allowed.

Summary

Issues:
Challenge to proceedings under Section 138 of Negotiable Instruments Act, 1881 without joining the Partnership Firm as a party.

Analysis:
The petitioner challenged the proceedings under Section 138 of the Negotiable Instruments Act, 1881, arguing that as a partner of a Partnership Firm, he should not be prosecuted without joining the firm in the criminal case. The petitioner contended that the cheques were drawn by the firm, and therefore, the firm should be a necessary party in the proceedings. The petitioner's counsel emphasized that the sale deed clearly indicated that the land was purchased by the Partnership Firm, and as per Section 141 of the Act, the firm must be made a party in such cases.

The respondent's advocate argued that notice to an authorized partner of the firm is deemed to be a notice to the firm itself, and every partner is jointly and severally liable for the firm's acts. He highlighted that the criminal prosecution under Section 138 of the Act is a penal provision, not for recovery of money, and once the offense is established, the offender faces penal liability. The respondent further emphasized that the petitioner, as an authorized partner conducting the firm's affairs, should be held accountable as per the law.

The court referred to relevant legal precedents and statutory provisions to analyze the situation. It was noted that Section 141 of the Act imposes constructive liability on the person responsible for the firm's conduct, and the explanation to the section includes a firm within the definition of a company. The court cited the Supreme Court's ruling in a similar case, emphasizing that the liability primarily falls on the firm, and the conditions of Section 141 must be met for other individuals to be held liable.

In light of the arguments and legal provisions, the court concluded that the partnership firm should have been joined as a party in the criminal proceedings under Section 138 of the Act. Since the firm was not separately made a party, the petitioner's inclusion as a partner without impleading the firm was deemed untenable. Consequently, the court allowed the petition, quashed the criminal complaint, and set aside the consequential proceedings.