Section 138 NI Act: complaint without Arraying
partnership firm-Maintainable?
It
is imperative in a complaint u/s 138 of Negotiable Instruments Act to array
parties, against whom the cause of action in a complaint arises. In case,
necessary party is not arrayed, the lapses may lead to anomaly and complaint is
liable to be dismissed. For instance, if a complaint is raised against a
company incorporated under the provisions of Companies Act, it is necessary to
array a company in a complaint, as an accused, besides, Directors and
Authorised signatory, failing which the complaint may not be maintainable. Now,
the question arises, what will be a position, in case of a partnership, whether
partnership firm shall have to be arrayed, in a complaint u/s 138 of NI Act
besides, the partners or whether the complaint shall still, be maintainable, even
after non- arraying of partnership firm, if the partners are made parties. The
discussion is all the more necessary, in view of the fact that in case of
complaint against the company and its directors, it is held necessary to make
the company a party. Whether a corollary to that effect could be drawn in case
of partnership firm or not has to be seen and the same shall be analysed in the
perspective as per law laid down in this regard.
A
partnership firm is separate from other entities with limited liability, such
as a company, in as much as the partners of a partnership firm are liable to be
prosecuted individually sans the partnership firm, being arraigned as an
accused, or being issued notice under Section 138 of the NI Act or as required
under Section 141 of the NI Act, in the following manner:
(i)
Firstly, unlike a company, which is a separate legal entity from its
shareholders, a partnership is only a compendious name for its partners.
(ii)
That the partners are jointly and severally liable for the profit and loss of
the partnership firm and have unlimited liability whereas, in a company, its
shareholders have limited liability, whereas in a partnership firm, the
partners have unlimited liability.
(iii)
Under Section 42 of the Partnership Act, 1932 (‘Partnership Act’ for short),
subject to contract between the partners, a partnership firm gets dissolved on
events specified in sub-sections (a) to (d) of Section 42.
(iv)
A partnership firm cannot on its own create or enter into any contract and that
either those partner(s) authorized by all the partners or all the partners of
the firm, must execute the contract. Further, subject to the partnership
agreement, a partnership firm is made party to a contract only at the time of
execution in order to make all the partners and the firm jointly and severally
liable to the contract.
(v)
Though, Order XXX Rules 1 and 2 of the Code of Civil Procedure, 1908
(hereinafter “CPC”) allow for suing of partners in the name of the firm, it is
only a convenient method for referring to the persons who constitute the firm
at the time of the accruing of the cause of action and that a decree in favour
of or against a firm, in the name of the firm, has the same effect as a decree
in favour of or against all the partners.
(vi)
Unlike a limited liability partnership or a company, an ordinary partnership is
not a juristic person as such, and that the real legal entity is the partners
themselves. That in an agreement involving a partnership firm, all partners in
their individual capacity ought to additionally be part of such agreement as
parties and execute it in their individual capacity. This is because a
partnership firm has no separate legal existence of its own.
It
may be worthwhile, in the context to refer to earlier Three (3) Judge Bench of Supreme
Court in Aneeta Hada vs. Godfather Travels & Tours (P) Ltd.,
(2012) 5 SCC 661 (“Aneeta Hada”) , the core question was considered -whether,
in view of Section 141 of the Act, a company could have been made liable for
prosecution without being impleaded as an accused, and whether a director of a
company could have been prosecuted for offences punishable under the provisions
of the Act without the company being arraigned as an accused. It is in the
aforesaid context that, after referring to several judgments of Supreme Court,
it was observed by the Supreme Court that the commission of an offence by a
company is an express condition precedent to attract the vicarious liability of
others such as directors or employees of a company. Thus, the words “as well
as the company” appearing in the Section make it absolutely clear that when
the company could be prosecuted then only the persons mentioned in the other
categories could be vicariously liable for the offence subject to the averments
in the petition and proof thereof. This is because a company is a separate
juristic person and thus, the imperative for arraigning the company as an
accused for maintaining the prosecution under Section 141 of the Act. It was thus
held that it is only when the company is held to be guilty of the offence,
under Section 138 read with Section 141 of the Act that the other categories of
offenders could also be proceeded against on the touchstone of the principle of
vicarious liability as the same has been mandated by Section 141 of the Act
itself.
Consequently,
the earlier decision of the Supreme Court in Anil Hada vs. Indian Acrylic
Ltd., (2000) 1 SCC 1 was held to be not the correct law, insofar as it
stated therein that the director or any other officer of a company can be
prosecuted without impleadment of the company.
In
fact, in an earlier judgement G. Ramesh vs. Kanike Harish Kumar Ujwal,
(2020) 17 SCC 239 (Two Judge Bench), it was noted from
the complaint in the said case that the same contained a sufficient description
of (i) nature of the partnership; (ii) the business which was being carried
out; and (iii) role of each of the accused in the conduct of the business and
specifically in relation to the transaction which took place with the
complainant. In the averments, the accused had been referred to in the plural
sense. The Supreme Court observed that Section 141 of NI Act uses the
expression “company” so as to include a firm or association of a persons. That
the first accused in the said case was a partnership firm of which the
remaining two accused were the partners which fact had been missed by the High
Court and therefore the appeal was allowed.
In
terms of the explanation to Section 141, the expression “company” has been
defined to mean any body corporate and to include a firm or other association
of individuals. Sub-section (1) of Section 141 postulates that where an offence
is committed under Section 138 by a company, the company as well as every
person who, at the time when the offence was committed, was in charge of and
was responsible to the company for the conduct of the business shall be deemed
to be guilty of the offence.
Recently,
Supreme Court has settled the legal aspect in a matter captioned as Dhana
Singh Vs Prabhu Vs Chandrashekhar & Anr arising out of Special
Leave Petition (Criminal) No.5706 of 2024 and following paragraphs are worthy
of a reference:.
“9.7…….
while a director is a separate persona in relation to a company, in the case of
a partnership firm, the partner is not really a distinct legal persona. This is
because a partnership firm is not really a legal entity separate and distinct
as a company is from its directors but can have a legal persona only when the
partnership firm is considered along with its partners. Thus, the partnership
firm has no separate recognition either jurisprudentially or in law apart from
its partners. Therefore, while a director of a company can be vicariously
liable for an offence committed by a company, insofar as a partnership firm is
concerned, when the offence is committed by such a firm, in substance, the
offence is committed by the partners of the firm and not just the firm per se.
Therefore, the partners of the firm are liable for the dishonour of a cheque,
even though the cheque may have been issued in the name of the firm and the
offence is committed by the firm. Therefore, in law and in jurisprudence, when
a partnership firm is proceeded against, in substance, the partners are liable
and the said liability is joint and several and is not vicarious. This is
unlike a company which is liable by itself and since it is an artificial
juristic entity, the persons in charge of the affairs of the company or who
conduct its business only become vicariously liable for the offence committed
by the company’.
It
is further held in Dhana Singh (Supra) as under:
9.9
Therefore, even in the absence of partnership firm being named as an accused,
if the partners of the partnership firm are proceeded against, they being
jointly and severally liable along with the partnership firm as well as
inter-se the partners of the firm, the complaint is still maintainable. The
accused in such a case, would, in substance be, the partners of the partnership
firm along with the firm itself. Since the
liability is joint and several, even in the absence of a partnership
firm being proceeded against by the complainant by issuance of legal notice as
mandated under Section 138 of the Act or being made an accused specifically in
a complaint filed under Section 200 of CrPC, (equivalent to Section 223 of the
BNSS), such a complaint is maintainable.
9.10
Thus, when it is a case of an offence committed by a company which is a body
corporate stricto sensu, the vicarious liability on the categories of persons
mentioned in sub-section (1) and sub-section (2) of Section 141 of the Act
accordingly would be proceeded against and liable for the offence under Section
138 of the Act. In the case of a partnership firm on the other hand, when the
offence has been proved against a partnership firm, the firm per se would not
be liable, but liability would inevitably extend to the partners of the firm
inasmuch as they would be personally, jointly and severally liable with the
firm even when the offence is committed in the name of the partnership firm”.
According
to the Supreme Court, thus, the partnership firm is only a compendious name for
the partners of the firm, and therefore, any offence committed under Section
138 read with Section 141 of the Act would not make the partners of the firm
jointly and severally liable with the firm. This is so, as had the intention of
legislature been to the contrary, the Parliament would have provided so, by
expressly stating that the firm, as well as the partners, would be liable
separately for the offence under Section 138 of the Act. The perusal of section
141 of NI Act shall reflect that such an intention is not there so as to
construe that the offence proved against the firm would amount to the partners
of the firm also being liable jointly and severally with the firm. Therefore,
there is no separate liability on each of the partners unless sub section (2)
of Section 141 applies, when negligence or lack of bona fides on the part of
any individual partner of the firm has been proved.
From
the standpoint of above, it is necessary to bear in mind the principle of law
that a partnership is a compendious expression to denote the partners who
comprise of the firm. By the deeming fiction in Explanation (a) the expression
company is defined to include a firm.” While holding that Section 141 is a
deeming provision, it was also observed that a partnership is a compendious
expression to denote the partners who comprise the firm which means that a firm
without a reference to its partners has no juristic identity in law. By a
deeming fiction, in Explanation (a) to Section 141, the expression “company”
has been defined to include a firm. If the complainant had proceeded only
against the partnership firm and not the partners it possibly could have been
held that the partnership firm in the absence of its partners is not a complete
juristic entity which can be recognised in law and therefore cannot be
proceeded against. On the other hand, in the instant case the complainant has
proceeded against the two partners. The complainant is aware of the fact that
the cheque has been issued in the name of the partnership firm “Mouriya Coirs”
and has been signed by one of the partners. The complainant has proceeded
against the partners only without arraigning the partnership firm as an
accused. It is necessary to reiterate that a partnership firm in the absence of
its partners cannot at all be considered to be a juristic entity in law. On the
other hand, the partners who form a partnership firm are personally liable in
law along with the partnership firm. It is a case of joint and several
liability and not vicarious liability as such. Therefore, if the complainant
herein has proceeded only against the partners and not against the partnership
firm, according to Supreme Court, it is not something which would go to the
root of the matter so as to dismiss the complaint on that ground. Rather,
opportunity could have been given to the complainant to implead the partnership
firm also as an accused in the complaint even though, not even statutory demand
notice was sent specifically in the name of the partnership.
Alternatively,
notice to the partners/accused could have been construed as notice to the
partnership firm also. It is so, for the reason that unlike a company which is
a separate juristic entity from its directors thereof, a partnership firm
comprises of its partners who are the persons directly liable on behalf of the
partnership firm and by themselves. Thus, a partnership firm, in the absence of
the partners being arraigned as accused, would not serve the purpose of the
case and would be contrary to law. On the other hand, even in the absence of
making a partnership firm an accused in the complaint, the partners being made
the accused would be sufficient to make them liable inasmuch as the partnership
firm without the partners is of no consequence and is not recognised in law.
This is because, in the case of a partnership firm, the said juristic entity is
always understood as a compendious term namely, the partnership firm along with
its partners. Therefore, if an appellant-complainant had proceeded only against
the partnership firm and not its partners, then possibly the respondents would could
have been right in contending that the complaint was not maintainable, but, if
partners are arrayed in a complaint, but the partnership firm is not, then
situation is different. The complainant if not arraigned the firm, but has
arraigned the partners of the firm, as accused and has also issued notice to
them; therefore, the defect, if any, is not significant or incurable. Moreover,
in case, the cheque was issued in the name of the firm and signed by one of the
partners, for and on behalf of the other also, therefore, the liability is
deemed to be on both the partners of the firm. In this backdrop, permission can
easily be given to arraign the partnership firm as an accused having regard to
the characteristics of a partnership firm.
The
Supreme Court has thus categorically held that a complaint cannot be rejected or
dismissed for the reason that the partnership firm was not arraigned as an
accused in the complaint or that demand notice had not been issued to it under
Section 138 of the Act. Moreover, the notice issued to the partners of the firm
in the instant case shall be construed to be a notice issued to the partnership
firm also viz., ‘Mouriya Coirs’. Still, permission was granted to
arraign the partnership firm as an accused in the complaint. The fiction of
law, nevertheless has categorically been ascertained by the Supreme Court that
unlike, need of arraigning a company, as an accused in a complaint u/s 138 of
Negotiable Instruments Act, there is no corresponding requirement of arraigning
a partnership firm in a complaint and the reasons are elaborated in the
aforesaid discussion of Supreme Court while adjudicating Dhana Singh Vs
Prabhu Vs Chandrashekhar & Anr (Supra).
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Anil K Khaware
Founder & Senior Associate
Societylawandjustice.com
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