S. 141 NI Act | No Restriction On Making Unregistered Firm An Accused In A Cheque Bounce Case: Bombay High Court

The Bombay High Court recently held that an unregistered partnership firm can be made an accused in a cheque dishonour case under the Negotiable Instruments Act, 1881 (NI Act).

Justice Anil Pansare of the Nagpur bench observed that the status of registration of the partnership firm is irrelevant on proceedings for cheque dishonour under the NI Act.

“registration or non-registration of the partnership firm will have no bearing insofar as Section 141 of the Act of 1881 is concerned. The provision under Section 141 of the Act of 1881 makes it mandatory to arraign the company or the firm, as the case may be, as party accused in the complaint. This provision or any other provision of the Act of 1881 does not put embargo on making unregistered partnership firm an accused”, the court held.

The court allowed two Criminal Revision Applications challenging the applicant’s conviction under section 138 of the NI Act.

The complainant, one PP Sudhakaran, alleged that he had extended financial assistance of Rs.1,55,000/- and Rs.68,000/- respectively to the applicant on several occasions for his power transmission business. When asked to repay the money, the applicant issued two cheques that bounced due to the "Account closed" remark. Consequently, Sudhakaran initiated legal action resulting in the applicant's conviction.

The applicant Satyaseelan Kuttappan was convicted under Section 138 of the Act by the Judicial Magistrate First Class, Nagpur, with subsequent unsuccessful appeals in the Sessions Court. Thus, he filed the present revision applications.

The question before the court was whether an 'Unregistered Firm' should fall within the purview of 'Firm' as defined in Section 141 of the NI Act. This provision deems a company, including the persons responsible for the conduct of the company, liable for the offence of cheque dishonour committed by the company. The explanation to the section specifies that the term 'company' includes a firm and the term 'director' within the context of a firm refers to a partner in the firm.

Advocate BH Tekam for the applicant submitted that the financial assistance was provided to the applicant in his capacity as a partner of the firm Shri Balaji Power Tech, Nagpur and the cheques were issued by the firm. Thus, the firm should have been made an accused in the complaint as per Section 141 of the NI Act, he argued.

Advocate GC Khond for the complainant argued that the unregistered firm could not be made a party accused as per Section 69 of the Partnership Act, 1932.

Tekam argued that the bar under Section 69(2) of the Partnership Act was limited to suits and not criminal prosecutions. Tekam cited the judgment of the Madras High Court in Rangabashyam v. Ramesh, which emphasized that the action under Section 138 of the Act was not a suit to enforce a right arising out of a contract and thus was not subject to the bar under Section 69(2) of the Partnership Act.

Agreeing with the aforementioned case, the court concluded that Section 141 did not prevent the inclusion of an unregistered partnership firm as an accused.

The court highlighted that the cheques in question were issued by the partnership firm, yet the firm had not been made an accused in the complaint. The complainant had mentioned in the complaint that the applicant was one of the partners. Since the other partner(s) had not been made accused in the complaint, the court concluded that the complaint itself was not maintainable.

The court rejected Khond’s argument that the applicant did not raise an objection about the complaint before the trial court or the sessions court. The court emphasized that a question of law could be raised at any stage of the proceedings and before any court.

The court refused to remand the matter back to the trial court to allow the complainant to make the firm a party-accused since the demand notice was not sent against the firm. The court relied on the judgment of the Supreme Court in Himanshu v. B. Shivamurthy and Anr. which stated that a company that was not initially named as an accused could not be subsequently added if the demand notice was not served against it.

Thus, the court set aside the judgments passed by the JMFC as well as the Sessions court, and acquitted Kuttappan of the offence punishable under Section 138 of the NI Act, 1881.

Case no. – Criminal Revision Application No. 94/2023

Case Title – Shri Satyaseelan Kuttappan v. PP Sudhakaran and Anr.

Click Here To Read/Download Judgment