SC Restores Cheque Dishonour Case: Rules Partners Can Be Prosecuted Even Without Naming Firm [Read Judgement]

The Supreme Court has held that a firm's partners can be prosecuted under Section 138 of the Negotiable Instruments Act, 1881, even if the firm itself is not named as an accused. The Court emphasised that a partnership firm has no separate legal identity from its partners, and a notice or prosecution against the partners is sufficient to proceed under the law.

The appellant, Dhanasingh Prabhu, had advanced a sum of ₹21 lakhs to Mouriya Coirs, a partnership firm engaged in the coir business. To discharge this liability, one of the partners issued a cheque for the same amount from the firm’s bank account in February 2021. Upon presentation, the cheque was dishonoured as the account had been frozen.

Following the dishonour, the appellant issued notices to both partners under Section 138 of the Negotiable Instruments Act, 1881 and subsequently filed a complaint. However, the complaint did not name the partnership firm as an accused, nor was a notice separately addressed to the firm. The High Court quashed the complaint, relying on Section 141 of the Act and precedent from Aneeta Hada v. Godfather Travels, holding that the complaint was not maintainable in the absence of the firm as an accused.

Setting aside the High Court's decision, the Supreme Court clarified the fundamental distinction between companies and partnership firms under Indian law. Unlike a company, a partnership firm is not a separate legal entity. It is merely a compendious name for the partners who constitute it. Therefore, when partners are issued notice and named in the complaint, it also covers the firm.

The Bench comprising Justice B.V. Nagarathna and Justice Satish Chandra Sharma noted that, unlike corporate directors, partners are not vicariously liable but jointly and severally liable for all acts of the firm. The court asserted that there is no concept of vicarious liability in the case of partners and that their liability is direct.

The Supreme Court held that under Sections 25 and 26 of the Partnership Act, 1932, partners are jointly and severally liable for the firm's acts, including the issuance of dishonoured cheques. The Court further held that issuing a notice to the partners is deemed to be sufficient notice to the firm.

While noting that the omission to name the firm was not fatal, the Court granted liberty to the complainant to formally implead the firm as an accused. Reiterating the legal principle from Dulichand Lakshminarayan v. CIT and CIT v. R.M. Chidambaram Pillai, the Court stated that a firm does not exist in law apart from its partners. As a result, the appeal was allowed, and the trial court complaint was restored.

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