Negotiable Instruments Act, 1881 — Ss. 138 & 141 — Partnership Firm — Dishonour of cheque — Liability of partners
Partnership firm — Not a separate juristic entity — Firm only a compendious name for partners
Partnership firm has no independent legal personality distinct from its partners; partners collectively constitute the firm and are personally liable for acts of the firm.
(Paras 7.5–7.6, 7.9–7.11)Section 141 — Inclusion of firm within “company” — Purpose and scope
Inclusion of firm within the definition of “company” under Explanation (a) to Section 141 is a legal fiction adopted for convenience; such fiction does not equate a partnership firm with a body corporate having separate juristic existence.
(Paras 9.5–9.7)Liability of partners — Joint and several — Not vicarious
Liability of partners for dishonour of cheque issued in the name of a partnership firm is joint and several, arising from partnership law; concept of vicarious liability applies to companies and not to partnership firms.
(Paras 6.9, 9.7–9.9)Non-arraignment of partnership firm — Effect on maintainability
Where partners of a firm are impleaded as accused, non-arraignment of the partnership firm does not render the complaint under Section 138 non-maintainable.
(Paras 6.9–6.10, 9.9–9.10)Statutory notice — Notice to partners — Whether notice to firm
Notice issued to partners of a partnership firm can be construed as notice to the firm itself, as the firm acts only through its partners.
(Paras 6.10, 10)Aneeta Hada principle — Applicability limited to companies
Requirement of arraigning the company as an accused for fastening vicarious liability on directors does not apply with the same rigour to partnership firms.
(Paras 6.2, 6.9)Curable defect — Permission to implead firm
Even if partnership firm was not originally arraigned, court may permit its impleadment; defect not incurable where partners are already before the court.
(Paras 6.9–6.10, 10)
ANALYSIS OF FACTS
The appellant advanced a loan of ₹21,00,000 to the respondents, who were partners of the partnership firm Mouriya Coirs (Paras 2.1–2.2).
A cheque issued in the name of the partnership firm and signed by one partner was dishonoured on presentation (Para 2.2).
Statutory notice under Section 138 was issued to both partners, but not to the firm, and the complaint impleaded only the partners (Para 2.4).
The High Court quashed the complaint holding that failure to issue notice to the firm and to arraign the firm as an accused was fatal, relying upon Section 141 of the Act (Para 2.5).
The complainant challenged the said view before the Supreme Court.
ANALYSIS OF LAW
1. Legal Nature of a Partnership Firm
The Court reiterated settled jurisprudence that a partnership firm is not a legal person and has no existence independent of its partners; the firm name is merely a collective description of partners carrying on business (Paras 7.5–7.6).
2. Liability of Partners under Partnership Act
Under Sections 25 and 26 of the Partnership Act, partners are jointly and severally liable for acts of the firm done in the course of business (Paras 7.19–7.23).
Such liability is direct and personal, not derivative.
3. Interpretation of Section 141 NI Act
Section 141 employs a deeming fiction by including a firm within the expression “company” (Paras 9.5–9.6).
However, the Court clarified that this fiction cannot obliterate the fundamental distinction between a company and a partnership firm (Paras 9.7–9.9).
4. Distinction from Company-based Vicarious Liability
In a company, liability of directors is vicarious and contingent upon the company being arraigned as an accused (Aneeta Hada).
In contrast, in a partnership firm, partners themselves constitute the firm, and liability is joint and several, not vicarious (Paras 6.9, 9.8–9.9).
5. Effect of Notice and Arraignment
Since the firm acts only through partners, notice issued to partners is sufficient compliance with Section 138 (Paras 6.10, 10).
Non-arraignment of the firm is, at best, a curable procedural defect and cannot justify quashing of proceedings (Paras 6.9–6.10).
RATIO DECIDENDI
In prosecutions under Section 138 of the Negotiable Instruments Act involving a partnership firm, the liability of partners is joint and several, flowing directly from partnership law; consequently, issuance of statutory notice to partners and prosecution of partners alone is sufficient, and non-arraignment of the partnership firm as an accused does not render the complaint non-maintainable.
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