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TMI Blog2025 (3) TMI 490X X X X Extracts X X X X X X X X Extracts X X X X ..... nterpreted the word 'Suit' while deciding maintainability of a proceeding under Section 138 of NI Act in the context of ban imposed by the Sick Industrial Companies (Special Provisions) Act. It provides that no Suit for Recovery of Money or Enforcement of any security against the Industry, Company or Guarantee in respect of any loan or advance granted to the Industrial Company shall lie if in respect of the Industrial Company, an inquiry under Section 16 is pending or any scheme referred to under Section 17, is under preparation or consideration. The Court observed that the word 'Suit' envisaged in Section 22 (1) cannot be stretched to criminal prosecution as it is neither for recovery of money nor for enforcement of any security, etc. Section 138 of NI Act is a penal provision for commission of an offence which entails conviction and sentence on proof of the guilt in duly conducted criminal proceedings. Once the offence under Section 138 of NI Act is completed, the prosecution initiated is not for recovery of the amount covered by the Cheque, but for bringing the offender to penal liability. The Kerala High Court in Abdul Gafoor vs. Abdurahiman, [1999 (3) TMI 657 - KERALA HIGH CO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one partner, as has been done in the present case. In the present case, both the partners, namely, Petitioner/Satish Kumar Pawa and the Respondent No. 4/Sant Lal Agarwal, were jointly and severally responsible for the liability incurred by the Partnership Firm, meaning thereby that each is liable for the entire liability individually as well as jointly. The partners may have agreed to be entitled to the share profit & loss in a particular ratio, but their legal liability towards the third person is joint and several and there can be no apportionment. Once the matter stands compromised for whatever the amount, the offence is compounded towards all the existing liabilities of the Partnership Firm; nothing survives in the Complaint which has to be necessarily disposed of as compromised against the second partner/Petitioner as well. Thus, Section 257 of Cr.P.C. do not come to the rescue of the Complainant/Respondent No. 2 in the case herein. Conclusion - The principle that compounding by one partner results in the discharge of the entire liability of the partnership firm and its partners, given the joint and several liability under Section 25 of the Partnership Act. The complaint u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount shall be repaid as and when demanded by Respondent No. 2 and also agreed to pay interest @9% per annum till repayment of the whole amount. 4. Respondent No. 3/M/s Jagat Overseas, in its Letter dated 31.03.2015, admitted it legal liability to make the payment to the Respondent No. 2 and also requested for extension of time period for repayment, to which the Respondent No. 2 agreed vide Letter dated 18.04.2015 subject to certain conditions and specifically stated that if the dues are not paid, the post-dated Cheque shall be shall be presented for realization. 5. The Cheque was presented for payment on 06.04.2015, but was dishonoured with the Return Memo "Insufficient Funds". Respondent No. 2 sent a Legal Notice dated 10.07.2015 to Respondent No. 3/M/s Jagat Overseas and its Partners, Mr. Sant Lal Aggarwal and Mr. Satish Kumar Pawa, but they failed to discharge their liability. 6. Respondent No. 2 thus, filed a Complaint under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881 against Petitioner and Respondents No. 3 & 4. 7. Learned Metropolitan Magistrate ('MM') took cognizance of the Complaint and issued summons to all the accused persons, namely, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the Complaint cannot be proceeded with against the Officers, Director of the Companies and Partners of the Firm. 14. Admittedly, the cheque in question had been signed by Respondent No. 4 on behalf of Respondent No. 3/M/s Jagat Overseas, the Partnership Firm. Further, to secure the payment of the cheque amount, Respondent No. 4 had signed the Promissory Note in favour of the Complainant. Since the offence has already been compounded with Respondent No. 2 and he has been acquitted, no trial can proceed against the Petitioner alone and he cannot be held liable under Section 138 of the Act. 15. In addition, it is asserted that in fact, no loan was advanced by the Complainant to the Partnership Firm; rather it was the amount paid in discharge of its liability towards supply of rice/paddy. The mala fide Act of Respondent No. 4 cannot be held binding upon the Petitioner. No letter was ever sent by the Firm to the Complainant qua admission of its liability. Neither the Partnership Firm nor the Petitioner had received the alleged legal Notice dated 18.04.2015 sent by the Complainant. 16. The Respondent No. 4 has been malafidely acting against the interest of Partnership Firm. The al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Complaint against one Partner on account of settlement with him. 23. Furthermore, Section 25 of the Partnership Act, 1932 clearly enjoins that the liability of each partner is joint and several. Therefore, the Petitioner being a partner in the Partnership Firm, is severally liable for the amount due from the Firm. 24. It is therefore, submitted that the impugned Order does not suffer from any infirmity and the present petition is liable to be dismissed. 25. Submissions heard and record perused. 26. The core legal issue which has been raised by the Petitioner is whether in a case under Section 138 of N.I. Act, against the Partnership Firm, compounding by one partner would be in discharge of the entire liability of the Partnership Firm or it can be apportioned to the partners individually. 27. The Complaint under Section 138 of N.I. Act was filed against the Respondent No. 3/M/s Jagat Overseas, the Partnership Firm in which the Petitioner/Satish Kumar Pawa and the Respondent No. 4/Sant Lal Agarwal were the two partners, having their share in the ratio of 50:50. The averments in the Complaint were that the Partnership Firm/ Respondent No. 3/M/s Jagat Overseas, had issued Post-d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the Industrial Company, an inquiry under Section 16 is pending or any scheme referred to under Section 17, is under preparation or consideration. The Court observed that the word 'Suit' envisaged in Section 22 (1) cannot be stretched to criminal prosecution as it is neither for recovery of money nor for enforcement of any security, etc. Section 138 of NI Act is a penal provision for commission of an offence which entails conviction and sentence on proof of the guilt in duly conducted criminal proceedings. Once the offence under Section 138 of NI Act is completed, the prosecution initiated is not for recovery of the amount covered by the Cheque, but for bringing the offender to penal liability. 33. The registration or non-registration of the Partnership Firm would have no bearing insofar as Section 141 of NI Act is concerned. The same has been held by the Karnataka High Court in the case of Gowri Containers vs. S C Shetty, ILR 2007 Kar 4586. 34. The Kerala High Court in Abdul Gafoor vs. Abdurahiman, 1999 (4) Crimes 98, held that Section 138 is not a Suit and the bar of Section 69 (2) of the Partnership Act would not operate in such cases. It was further observed tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SC 2795, after referring to judgments in Iridium India Telecom Ltd. v. Motorola Inc and Ors., 2004 (1) BOM CR 479 and Standard Chartered Bank and others v. Directorate of Enforcement and others, AIR 2006 SC 1301, has observed that "the Company can have criminal liability and further, if a group of persons that guide the business of the companies have the criminal intent, that would be imputed to the body corporate. In this backdrop, Section 141 of the Act has to be understood. The said provision clearly stipulates that when a person which is a Company commits an offence, then certain categories of persons in charge as well as the Company would be deemed to be liable for the offences under Section 138. Thus, the statutory intendment is absolutely plain." 44. The Apex Court further held that "for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative." 45. The relevant paras of the judgment are reproduced as under: - "[1] In Criminal Appeal Nos. 838 of 2008 and 842 of 2008, the common proposition of law that has emerged for consideration is whether an authorised signatory of a company would be liable for prosecution un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [(2000) 1 SCC 1] is overruled with the qualifier as stated in paragraph 37. The decision in Modi Distilleries [AIR 1988 Supreme Court 1128] has to be treated to be restricted to its own facts as has been explained by us hereinabove." 46. The same was reiterated by the Apex Court in Anil Gupta vs Star India Pvt. Ltd., 2014 (10) SCC 373, Himanshu vs B. Shivamurthy & Anr., (2019) 3 SCC 797, and recently in Bijoy Kumar Moni vs Paresh Manna & Anr., 2024 INSC 1024. 47. In light of the aforesaid observations, it is settled that in the absence of Company being arraigned as an accused, the Directors cannot be held liable for the offence committed by a company. 48. Since the Notice under S.251 Cr.P.C. has not been framed against the Partnership Firm, this itself is a sufficient ground for discharge of the Petitioner. 49. The Third aspect for consideration is: Whether compounding of Offence by one Partner would result in complete discharge of the Liability of the Partnership Firm against all the Partners? 50. The main contention raised on behalf of the Petitioner is that the Partnership Firm defines the group of persons who form a Partnership Firm and the liability of the partn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Apex Court that it is open to a creditor of the Firm to recover the debt from any one or more of the partners. Each partner shall be liable as if the debt of the Firm has been incurred on his personal liability. 56. Therefore, when there is a compromise by one partner, it has to be for and on behalf of the Partnership Firm and there cannot be any partial settlement with one partner, as has been done in the present case. 57. The Complainant has sought to justify partial compounding and the withdrawal of the Complaint qua Respondent No. 4 under Section 257 of the Cr.P.C. which empowers withdrawal of Complaint against one or more accused persons. 58. Sections 257 of Cr.P.C. reads as under: "257. Withdrawal of complaint - If a complainant, at any time before a final order is passed in any case under this Chapter, satisfies the Magistrate that there are sufficient grounds for permitting him to withdraw his complaint against the accused, or if there be more than one accused, against all or any of them, the Magistrate may permit him to withdraw the same, and shall thereupon acquit the accused against whom the complaint is so withdrawn." 59. Though, Section 257 empowers a Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him. 2. It is further agreed between the parties that respondent No. 2/Santlal Agarwal shall pay the aforesaid settled amount to the complainant in five equal monthly instalments of Rs. 5,00,000/-(Rupees Five Lakh only) each, by way of demand draft, before the referral court on 21st day of every English calendar month. The instalments would commence from January, 2019 itself. In case of holiday, the payment shall be made on the next working day. 3. It is agreed between the parties that in case of default, the respondent No. 2 shall pay a sum of Rs. 15,000/- on one default and in case of second default, the settlement shall be revoked. 4. It is agreed between the parties that after realization of the aforesaid settled amount, the complainant shall be left with no claim/dues/ criminal or civil liability whatsoever against the respondent No. 2/Santlal Agarwal qua the instant complaint case and he shall withdraw his claim against respondent No. 2 accordingly. The complainant shall not recover the civil liability and criminal liability from the respondent *No. 2 in the present case and he shall also not file any claim against respondent *No. 2 with regard to the instant matter. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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