2025 (3) TMI 838 - HC - Indian Laws

Dishonour of Cheque - post dated cheque as an advance payment or cheque was given as security for completing the work - absence of the partnership firm as a party to the proceedings affects the liability of the accused/respondent under Section 138 of the N.I. Act - HELD THAT - In the present case though the respondent has taken a specific plea that the other partner of Kishan Construction namely Ganesh had handed over the cheque to the complainant but in the complaint neither Ganesh has been made an accused nor any specific role has been attributed against the present respondent Kishan Bouri. Accordingly it is apparent that the company who have committed offence under section 138 of N.I. Act if any has not been made a party and the respondent/partner only has been made as an accused. In Sarad Kumar Sanghi Vs. Sangita Raney 2015 (2) TMI 1117 - SUPREME COURT the supreme Court has specifically held relying upon Aneeta Hada Vs. Godfather Travels and Tours (p) Ltd 2012 (5) TMI 83 - SUPREME COURT that when a company has not been arraigned as a party no proceeding can be initiated against it even where vicarious liability is fastened under certain statute. In Aneeta Hada s Case 2012 (5) TMI 83 - SUPREME COURT the Court held that the words as well as the company appearing in the section make it absolutely un mistakably clear that when the company can be prosecuted then only the persons mentioned in the other categories could be vicariously liable for the offence subject to the averments in the petition and proof thereof. Needles to say that in terms of explanation to section 141 company means any body corporate and includes a firm or other association of individuals and director in relation to a firm means a partner of a firm and as such the present case clearly attracts the rigour of section 141 of the N.I. Act. The question of remanding the case back to the trial court giving opportunity to the complainant to amend the complaint and to continue the proceeding after adding the partnership firm as an accused also does not arise in the present context as the defect made in the complaint is an incurable defect in view of the fact that no notice under section 138 of N.I. Act was served upon the partnership firm within the statutory period of 30 days. Conclusion - The requirement under Section 141 of the N.I. Act that a company or firm must be made a party to proceedings when an offense is committed by such an entity. The absence of the firm as a party is a fatal procedural defect. The absence of the firm as a party rendered the proceedings invalid. Application dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

• Whether the accused/respondent was liable under Section 138 of the Negotiable Instruments Act, 1881 for the dishonor of a cheque.
• Whether the cheque was issued for a legally enforceable debt or liability.
• Whether the absence of the partnership firm as a party to the proceedings affects the liability of the accused/respondent under Section 138 of the N.I. Act.
• Whether the appellate court's decision to acquit the accused/respondent was justified based on the evidence and legal principles.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Liability under Section 138 of the N.I. Act

• Relevant legal framework and precedents: Section 138 of the N.I. Act deals with the dishonor of cheques for insufficiency of funds and prescribes penalties for such offenses. The legal presumption is in favor of the holder of the cheque, as established in Rangappa v. Mohan.
• Court's interpretation and reasoning: The trial court initially found the accused guilty under Section 138, relying on the presumption in favor of the complainant, which the accused failed to rebut. However, the appellate court overturned this decision, emphasizing the lack of evidence for a legally enforceable debt.
• Key evidence and findings: The cheque in question was issued by a partnership firm, Kishan Construction, and signed by the respondent and another partner. The appellate court found that the complainant failed to demonstrate that the cheque was issued for a legally enforceable debt.
• Application of law to facts: The appellate court concluded that without evidence of a legally enforceable debt, the presumption under Section 138 could not stand.
• Treatment of competing arguments: The complainant argued that the cheque was issued for a debt, while the respondent contended it was for security purposes. The appellate court sided with the respondent, finding no evidence of a debt.
• Conclusions: The appellate court acquitted the respondent, finding no legally enforceable debt and questioning the procedural validity of the complaint.

Issue 2: Absence of the Partnership Firm as a Party

• Relevant legal framework and precedents: Section 141 of the N.I. Act requires that when an offense is committed by a company or firm, the entity itself must be made a party to the proceedings. This principle was reinforced in Aneeta Hada v. Godfather Travels and Tours (P) Ltd.
• Court's interpretation and reasoning: The court noted that the partnership firm, Kishan Construction, was not made a party to the proceedings, which is a critical procedural defect under Section 141.
• Key evidence and findings: The evidence showed that the cheque was issued by the partnership firm, yet the firm was not named as an accused in the complaint.
• Application of law to facts: The court applied the principles from Aneeta Hada, concluding that the absence of the firm as a party invalidated the proceedings against the individual partner.
• Treatment of competing arguments: The complainant did not address the procedural defect, while the court emphasized its significance.
• Conclusions: The court found the procedural defect incurable, leading to the dismissal of the complaint.

3. SIGNIFICANT HOLDINGS

• Core principles established: The judgment reaffirmed the requirement under Section 141 of the N.I. Act that a company or firm must be made a party to proceedings when an offense is committed by such an entity. The absence of the firm as a party is a fatal procedural defect.
• Final determinations on each issue: The court upheld the appellate court's decision to acquit the respondent, emphasizing the lack of a legally enforceable debt and the procedural defect of not naming the partnership firm as a party.
• Verbatim quotes of crucial legal reasoning: The court cited Aneeta Hada and Sunil Bharti Mittal v. CBI to support its conclusion that the absence of the firm as a party rendered the proceedings invalid.