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TMI Blog2017 (5) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... edent under section 141, namely, offence by the company stands satisfied. The issue whether a partnership firm is a legal entity within the meaning of section 141 of the N.I. Act is also no longer res integra after the pronouncement in the case of Oanali Ismailji Sadikot vs. State of Gujarat & Anr., [2016 (3) TMI 290 - GUJARAT HIGH COURT ] held that once the company is held to be an essential party and that arraigning of a company as an accused is imperative for prosecution under Section 141 of the Negotiable Instruments Act, it necessarily follows that arraigning of a partnership firm is also imperative for prosecution against the partners under Section 141 of the Negotiable Instruments Act. The prosecution launched against only one of the partners of the partnership firm, without joining the partnership firm, cannot be maintainable. Thus this application succeeds and is hereby allowed. The further proceedings of the Criminal Case pending in the court of the learned 4th Addl. Senior Civil Judge & Addl. Chief Judicial Magistrate, Surat are hereby quashed. - CRIMINAL MISC.APPLICATION (FOR QUASHING & SET ASIDE FIR/ORDER) NO. 5411 of 2017 - - - Dated:- 18-4-2017 - MR. J.B.PARD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a suit for permanent injunction restraining the defendant committee from realizing the profession tax demanded by it. The appellants challenged the validity of the assessment contending that construed in light of the definition given in Section 2(40) of the Punjab General Clauses Act, the term person occurring in Section 6(1)(b) of the Punjab Municipal Act, 1911, included a firm and since the trade carried on by the firm was one, the tax could be levied on the firm, and not on the partners individually. On such premises, it was pleaded that the Municipal Committee in levying the tax on the individual partners had exceeded its statutory powers under Section 61 (1)(b) of the Municipal Act. 9.1 The trial Court dismissed the suit, on appeal by the plaintiffs, the Additional District Judge, Amritsar, reversed the judgment of the trial Court and decreed the suit. The Municipal Committee carried a further appeal to the High Court. The learned Single Judge, who heard the appeal, affirmed the judgment and decree of the first appellate Court. The matter reached upto the Supreme Court. The Supreme Court in para 14 quoted Section 61(1)(b) of the Municipal Act material for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the individuals who compose the firm. The crucial words in the definition of 'partnership' are those that have been underlined. They hold the key to the question posed above. They show that the business is carried on by all or any of the partners. In the instant case, admittedly, all the plaintiff-appellants are carrying on the business in partnership. All the six partners are sharing the profits and losses. All the partners are jointly and severally responsible for the liabilities incurred or obligations incurred in the course of the business. Each partner is considered an agent of the other. This being the position, it is not possible to hold that each of the six partners is not carrying on a trade or calling within the purview of clause (b) of Section 61 (1) of the Municipal Act. At the most, it can be said that each of these six persons is severally as well as collectively carrying on a trade in the Municipality. There is nothing in the language of Section 61 or the scheme of the Municipal Act which warrants the construction that persons who are carrying on a trade in association or partnership with each other cannot be individually taxed under clause (b) of Section 61 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e new firm alone was reconstituted consisting of the two partners of the old firm M/s. Prayagchand Hanumanmal and Periwal and Co. (P.) Ltd. Prayagchand and Hanumanmal individually are entitled to 25 per cent shares each for the profits in the appellant firm and Periwal and Co. (P.) Ltd. has 50 per cent shares of profit. Under the Indian Partnership Act, '1932 the partnership firm registered thereunder is neither a person nor a legal entity. It is merely a-collective name for the individual members of the partnership. A firm as such cannot be a partner in another firm though its partners may be partners in another firm in their individual capacity. Either under the repealed Act or the Act, a firm is liable to be separately assessed to tax as well as all its partners in their capacity as individuals if they have taxable income. The appellant is separately registered under S. 26A of the Act and assessed to tax from the assessment year 1960-61 and onwards. There is no reconstitution of the original firm Prayagechand Hanumanmal inducting Periwal,and Co. (P.) Ltd. as its partner. Thus it is clear that the appellant assessee is a new identity under the Act. It is not a successor in in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Chartered Accountants. Once a person is qualified, experienced and efficient, it is difficult to understand how he could be discriminated against only for the reason that he has chosen to act alone in the professional career and has not been able to form a partnership firm. The efficiency, as pointed out by the High Court, springs from the personal experience, proficiency and personal capacities. It is, therefore, not possible to link these characteristics and professional acumen to a person or persons in a firm alone. A single individual as an auditor in a proprietary concern can have such characteristics and professional acumen by himself and also through the assistance of experienced auditor who could be in his services as efficient as any partnership firm. It is often seen in many cases that some of the partners of the partnership firm are sleeping partners with no professional duties to discharge. A partnership concern is not a legal entity like company; it is a group of individual partners. In a partnership firm, it is the partner who will be assisted in carrying out the work but quite remains the eligible Chartered Accountant. It is the same situation as in a proprietary c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itution of India. The Bombay City Civil Court made a reference in that regard to the High Court under Section 113 of the Code of Civil Procedure. The High Court, held that Sub-section (2A) of Section 69 was not unconstitutional. The appeal came up before the Supreme Court. After noticing Section 69(1) and (2) of the Partnership Act as well as Sub-section (2A) introduced by the Maharashtra Amendment 1984, the Court observed in paras 14 and 17 as under: 14. It may be mentioned that a partnership firm, unlike a company registered under the Indian Companies Act, is not a distinct legal entity, and is only a compendium of its partners. Even the registration of a firm does not mean that it becomes a distinct legal entity like a company. Hence the partners of a firm are co-owners of the property of the firm, unlike shareholders in a company who are not co-owners of the property of the company. 17. It has already been mentioned above that a partnership firm, whether registered or unregistered, is not a distinct legal entity, and hence the property of the firm really belongs to the partners of the firm. Subsection (2A) virtually deprives a partner in an unregistered firm from re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion.- (a) company means any body corporation and includes a firm or other association of individuals; and (b) director , in relation to a firm, means a partner in the firm. 16 Sub-section (1) of Section 141 of the Act provides that if a person committing an offence under the section is a company, every person who, at the time offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. The offender in section 138 of the Act is the drawer of the cheque. He alone would have been the offender thereunder if the Act did not contain other provisions. It is because of section 141 of the Act that penal liability under section 138 is cast on other persons connected with the company. Three categories of persons can be discerned from the said provision who are brought within the purview of the penal liability through the legal fiction envisaged in the section. They are: (1) The company the principal offender which committed the offence, (2) Every one who was in charge of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to informal understanding between the individuals. It has to be understood in the context of body corporate and partnership firms. The principal of ejusdem generis gets attracted in such a case. Therefore, a sole proprietary concern is not a company within the meaning of company as defined under the explanation to Section 141 of the Act. 19 The Explanation to Section 141 makes it clear that wherever there is a reference under Section 141 to a company it has to be substituted by the word firm where the accused is a partnership firm and the provision has to be read as if it refers to the firm. What this means is that a complaint can be filed for the offence under Section 138 Negotiable Instruments Act not only against the partnership firm on whose behalf the cheque was issued but also against an individual partner or person who, at the time of the commission of the offence, was in charge of the affairs of the firm or responsible to it for the conduct of its business. There is nothing in the provision which indicates that in every complaint involving the dishonour of a cheque issued by a firm both the firm as well as its partners have to be compulsorily impleaded. In other wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s' (5th Edn.) at page 67 states thus : An explanation does not enlarge the scope of the original section that it is supposed to explain. It is axiomatic that an explanation only explains and does not expand or add to the scope of the original section.... The purpose of an explanation is, however, not to limit the scope of the main provision.... The construction of the explanation must depend upon its terms, and no theory of its purpose can be entertained unless it is to be inferred from the language used. An 'explanation' must be interpreted according to its own tenor. 24 The principles laid down by the aforesaid authors are fully supported by various authorities of the Supreme Court. In Burmah Shell Oil Storage and Distributing Co. of India Ltd. v. Commercial Tax Officer [(1961) 1 SCR 902 : (AIR 1961 SC 315)] , a Constitution Bench decision of the Supreme Court observed thus : Now, the Explanation must be interpreted according to its own tenor, and it is meant to explain cl. (1)(a) of the Article and not vice versa . It is an error to explain the Explanation with the aid of the Article, because this reverses their roles. 25 In Bihar Co-ope ..... X X X X Extracts X X X X X X X X Extracts X X X X
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