Negotiable Instrument Act, 1881 – ss.138, 141 – Partnership Act, 1932 – Appellant-complainant advanced a loan of Rs.21,00,000/to the respondent nos.1 and 2 (a partneship firm) for business purposes – In order to discharge debt, a cheque was issued in the name of the partneship firm signed by respondent no.1 – Cheque was returned as dishonoured – Appellant-complainant issued a statutory notice to the respondents – Thereafter, the appellant-complainant filed a complaint before the trial Court – Respondents filed petition u/s.482 CrPC for quashing of complaint – The High Court quashed the complaint on the ground that while the cheque was issued on behalf of the partnership firm, no statutory notice was issued to the partnership firm and it was also not arraigned as an accused in the complaint – According to the High Court, the rigours of s.141 of the Act were not complied with – Correctness: Held: 1. The High Court was not right in rejecting or dismissing the complaint for the reason that the partnership firm was not arraigned as an accused in the complaint or that notice had not been issued to it u/s.138 of the Act – 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 – The complainant herein has 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 in these circumstances – Permission is granted to arraign the partnership firm as an accused in the complaint. [Paras 10, 6.10]
2. A partnership firm, unlike a company registered under the Indian Companies Act or a limited liability partnership registered under the Limited Liability Partnership Act, 2008, 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 – The firm name is a convenient method of describing a group of persons associated together in business at a certain point of time: no more or no less – 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 – 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 – If a partnership firm is liable for the offence u/s.138 of the Act, it would imply that the liability would automatically extend to the partners of the partnership firm jointly and severally. [Paras 8, 8.2, 9.7, 9.8] Partnership Act, 1932 – s.4 – Companies Act, 2013 – s.2(2) s.9 – Difference between a partnership firm and a company – Discussed.
Partnership Act, 1932 – Companies Act, 1956 or 2013 – A Partnership firm may not be a legal entity in the sense of a corporation or a company:
Held: A firm is not an entity of persons in law but is merely an association of individuals and firm name is only a collective name of those individuals who constitute the firm – In other words, the firm name is merely an expression, only a compendious mode of designating the persons who have agreed to carry on business in partnership – Thus, a firm may not be a legal entity in the sense of a corporation or a company incorporated under the Companies Act, 1956 or 2013, but it is still an existing concern where business is done by a number of persons in partnership. [Para 7.6] Partnership Act, 1932 – Partnership Firm – Whether a Separate Legal Personality:
Held: A partnership firm, unlike a company registered under the Companies Act, does not possess a separate legal personality and the firm’s name is only a compendious reference for describing its partners – This fundamental distinction between a firm and a company rests on the premise that the company is separate from its shareholders. [Para 7.9]
Partnership Act, 1932 – Partnership firm – Liability of Partners: Held: The partners of a firm have unlimited liability to the creditors of the firm – This is as opposed to a limited company or a limited liability partnership, wherein the liability of the directors or the shareholders is to the extent of their share in the limited company or limited liability partnership and limited to the nominal value of the shares held by them or the amount guaranteed by the shareholder when it comes to a company – Thus, the debt of the firm is the personal debt of a partner and the debt of the firm has to be incurred by each partner as a financial personal liability – Insofar as criminal liability is concerned, once it is established that an illegal act has been committed by the firm or its partners, then the partners will be jointly liable for it [Paras 7.20 and 7.21] Negotiable Instrument Act, 1881 – s.141 – Partnership Act, 1932 – Companies Act, 1956 or 2013 – Whether the expression “director” in sub-section (2) of Section 141 is restricted to a director of an incorporated company or a statutory body or whether it also includes a partner of a firm:
Held: On a conjoint reading of the various clauses of Section 141, what emerges is that the expression “company” has been used in an expansive way to include not just a company incorporated under the provisions of the Companies Act stricto sensu but also any body corporate such as a statutory company as well as other artificial juristic entity such as a partnership firm or other association of individuals – Hence, the expression “director” in sub-section (2) of Section 141 is not restricted to a director of an incorporated company or a statutory body, but also includes a partner of a firm – The expression “director” in sub-section (2) of Section 141 of the Act in relation to a firm means a partner, which is also a legislative device adopted by the Parliament knowing fully well and being conscious of the fact that a partnership firm, jurisprudentially speaking, does not stand on par with a director of a body corporate – Since the Parliament has used the expression “company” encompassing all types of juristic persons, it was necessary to give an expanded definition to the expression “director” in relation to a firm to mean a partner in the firm – Therefore, the inclusion of a firm within the meaning of the expression “company” is by a legal fiction and by way of a legislative device only for the purpose of creating a liability on the partners of the firm, which in any case, they are liable under the law of partnership in India. [Para 9.6] Negotiable Instrument Act, 1881 – ss.138 and 141 – When offence is committed by the company and when the offence is committed by a Partnership firm:
Held: 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. [Para 9.10]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Ankit Gyan. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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