The Supreme Court of India clarified that a complaint under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) for dishonour of a cheque issued by a partnership firm can proceed against individual partners even if the partnership firm is not made an accused in the case.
The judgment came in the case of Dhansingh Prabhu v Chandrasekhar, where a two-judge bench of Justice BV Nagarathna and Justice SC Sharma restored a complaint which was earlier dismissed by the Madras High Court.
The issue arose when a cheque was issued in the name of a partnership firm, but legal notice under Section 138 was sent only to the partners of the firm. The firm was neither issued any notice nor was it made a party to the complaint. The Madras High Court dismissed the complaint on the same ground. However, the Supreme Court reversed the order.
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The court said, “When an offence is proven against a partnership firm, the firm itself will not be liable, but the liability will necessarily extend to the partners of the firm….”
Justice Nagarathna, who wrote the judgment, emphasised that a partnership firm is not a separate legal entity apart from its partners. Thus, the legal liability extends directly to the partners who are individually, jointly and severally liable for the acts done in the name of the firm.
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The court also noted the case of Anita Hada v. Godfather Travels & Tours (P) Ltd. [(2012) 5 SCC 661], which mandated that the directors of a company must be prosecuted before they can be prosecuted under Section 141 of the NI Act. However, the court made a clear distinction between a company and a partnership firm, stating:
"This decision is not applicable to partnership firms, as directors have vicarious liability, while partners have direct and personal liability under the Partnership Act."
Finally, the court held that a complaint against individual partners is legally maintainable even if the partnership firm is not impleaded or given notice under Section 138.
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The bench concluded that, "since the liability is joint and several, such a complaint is maintainable even if no proceedings are initiated against the partnership firm."
While allowing the appeal, the court also gave liberty to the complainant to implead the partnership firm if he so wishes.
Case Title: DHANASINGH PRABHU VERSUS CHANDRASEKAR & ANOTHER
Appearance:
For Petitioner(s) Mr. C.B. Gururaj, Adv. Mr. Vishnu Unnikrishnan, Adv. Mr. Sabarish Subramanian, AOR
For Respondent(s) Mr. S. Nagamuthu, Sr. Adv. Mr. M.P. Parthiban, AOR Mr. Bilal Mansoor, Adv. Mr. Shreyas Kaushal, Adv. Mr. S. Geyolin Selvam, Adv. Mr. Alagiri K, Adv. Mr. P.V.K. Deivendran, Adv.