Unregistered Partnership Firms Can Maintain Complaint For Dishonor Of Cheque U/S 138 NI Act : Bombay HC [Read Judgment]

The division bench comprising Justice PN Deshmukh and Justice Pushpa V Ganediwala was answering a reference from an order of single judge, questioning the previous view of the high court taken in Sai Accumulator Industries, Sangamner v. Sethi Brothers, Aurangabad, 2016(5) Mh.LJ 936, that,

an unregistered partnership firm cannot maintain a complaint under Section 138 of the Negotiable Instruments Act due to the bar contained in Section 69(2) of the Indian Partnership Act.

Section 69(2) states that "No suit to enforce a right arising from a contract shall be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm."

In the backdrop, the Applicant, an unregistered firm, had initiated proceedings under Section 138 for dishonor of cheque. The Respondent contested the proceedings, stating that the applicant did not have locus to initiate such proceedings, in view of the bar under Section 69(2).

The court held that the term 'suit' under Section 69(2) must receive its 'plain and simple meaning' and should not be stretched for securing immunity from criminal prosecutions.

"There is no point in stretching the bar which is in the nature of temporary bar to the suit to the complaints under section 138 of the N. I. Act, which is in the nature of penal provision with the object to inculcate faith in banking transactions."

In this regard, reliance was placed on a coordinate bench decision of the Andhra Pradesh High Court in AV Ramanaiah v. M. Shekhara, ALD(CRI) 2009 2 801, which fortified its view by observing that

"the bar contained under Section 69 of the Act of 1932 is intended to prevent an unregistered partnership firm to enforce a right arising out of a contract against a third party, and that it is not intended to create any such bar for the purposes of enforcing rights arising out of statutes or for invoking the protection available under any other statute."

Accordingly, the high court answered the reference as under,

"The prosecution of an accused under Section 138 of the Negotiable Instruments Act, 1888, is not hit by the bar created by sub-section (2) of Section 69 of the Indian Partnership Act, 1932."

It added,

"the 'debt or other liability' as has been referred in Section 138 of the N.I. Act, is a 'legally enforceable debt or other liability'. However, by creating a bar to enforce a right arising out of contract by an unregistered firm, with the object to promote registration of the firms and to exempt the small firms from compulsory registration, the inherent character of enforceability of the 'right' does not get changed and it would still remain as a right enforceable by law."

Notably, many high courts have taken similar views in the past. A list of such high courts along with names of such judgments is listed below:

Himachal Pradesh HC- M/s Uttam Traders Ranghri v. Tule Ram alias Tula Ram
Kerala HC- Kerala Arecanut Stores v. M/s. Ramkishore and Sons
Allahabad High Court- Gurcharan Singh v. State of UP
Punjab & Haryana HC- Capital Leasing and Finance Co. v. Navrattan Jain
Andhra Pradesh HC-in AV Ramanaiah v. M. Shekhara

Case Details:
Case Title: Narendra v. Balbirsingh
Case No.: Crl. Application No. 748/2018
Quorum: Justice PN Deshmukh and Justice Pushpa V Ganediwala
Appearance: Advocate RM Bhangde (for Applicant); Advocate VM  Gadkari (for Respondent)

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