2025 (5) TMI 1358 - SC - Indian Laws

Dishonor of cheques - plea of cessation of partnership - Liability of partner u/s 138 of the NI Act - the cheques were signed by another partner - statutory requirements under the Indian Partnership Act 1932 particularly Sections 32 62 63 and 72 - Dishonour of cheques due to stop payment instructions issued by the drawee - complaint filled under Section 200 CrPC for an offence punishable under Section 138 of the NI Act - HELD THAT - Since the Partnership Firm (Accused No.1) is a Firm registered with the Registrars of Firms the provisions of the Partnership Act need to be referred to. A perusal of Section 72 of the Partnership Act would show that notice of retirement must be given to the Registrar of Firms under Section 63 and by publication in the Official Gazette and in at least one vernacular newspaper circulated in the district where the Firm to which it relates has its place or principal place of business such notice needs to be published. This should relate to the retirement of a partner which includes admission expulsion or resignation from the Firm in any manner that is including or excluding a partner in a partnership Firm. Section 32 of the Partnership Act deals with the retirement of a partner. In addition Section 62 of the Partnership Act deals with the information to be submitted with regard to the change in the names and addresses of the partners to the Registrar of Firms. What therefore is mandated under the Statute is that if any registered Firm intends to include or exclude by way of resignation expulsion or addition of any partner in the Firm an intimation to the said effect has to be forwarded and conveyed to the Registrar of Firms. As per Section 63 the Registrar shall make a record of the notice in the entry relating to the Firm in the Register of Firms and shall file a notice along with a statement relating to the Firm as provided for under Section 59 of the Partnership Act. None of these requirements as provided and mandated for under the Statute have been adhered to by Respondent No.1. Merely putting forth a resignation or the partners entering into an agreement or drafting a deed or/and accepting the resignation of a partner of the Firm is insufficient for discharging the liability of a partner of the Firm unless a proper entry to the said effect after the publication has been given effect to with the same having been recorded in the Register of Firms in the office of the Registrar of Firms as provided for in Section 63 of Partnership Act. Further simply because the cheques were signed by S. Yuvaraju (Accused No.2) who was the authorized signatory of the Partnership Firm (Accused No.1) does not discharge the liability of the Respondent. This is especially so when in the complaint filed under Section 200 of the CrPC by the Appellant a categorical averment is made that the Respondent along with the other two partners of the Partnership Firm (Accused No.1) is involved in day-to-day affairs of the said Firm. In the complaint it has clearly been pleaded that the Respondent-Accused No.4 was present at the residence of Accused No.2 when the cheques were signed. Further allegations are there to the effect that Accused No.3 and Respondent Accused No.4 had stated that they would ensure that the money is repaid. These facts collectively demonstrate that the requirements under Section 141 of the NI Act have been satisfied. Therefore the Respondent cannot escape from the liability concerning the cheques which were issued by the Respondent. The findings therefore with regard to the Respondent being no longer a partner of Partnership Firm (Accused No. 1) on the date of the issuance of the cheques is unsustainable as it is contrary to the mandate of the Statute and prima facie the factual aspect. Without further going into the details of the pleadings relatable to the facts we are of the view that the High Court has erred in law by exceeding its jurisdiction while exercising its powers under Section 482 CrPC. Thus the present appeal is allowed. The order passed by the High Court is hereby set aside. Proceedings before ACMM Bengaluru in CC are restored. Trial Court is directed to proceed in accordance with the law.

Summary

The core legal questions considered in this judgment include:

1. Whether the Respondent (Accused No.4) had validly ceased to be a partner of the registered Partnership Firm at the time of issuance of the cheques, thereby absolving him of liability under Section 138 of the Negotiable Instruments Act, 1881 (NI Act).

2. Whether the statutory requirements under the Indian Partnership Act, 1932, particularly Sections 32, 62, 63, and 72, regarding retirement of a partner and notice to the Registrar of Firms and public, were complied with by the Respondent.

3. Whether the Respondent's plea of cessation of partnership can be adjudicated and accepted at the stage of a petition under Section 482 of the Code of Criminal Procedure, 1973 (CrPC), without leading evidence.

4. Whether the Respondent can escape liability under Section 138 of the NI Act merely because the cheques were signed by another partner, despite allegations of his involvement in the partnership's affairs and assurances regarding repayment.

Issue-wise Detailed Analysis:

Issue 1: Validity of Respondent's Cessation as a Partner and Its Effect on Liability under Section 138 NI Act

The legal framework governing this issue is primarily the Indian Partnership Act, 1932, which regulates the formation, operation, and dissolution of partnership firms. Sections 32, 62, 63, and 72 are particularly relevant:

• Section 32 deals with retirement of a partner.
• Section 62 requires information about changes in partners to be submitted to the Registrar of Firms.
• Section 63 mandates the Registrar to record such changes in the Register of Firms.
• Section 72 requires a retired partner to publish a public notice in a vernacular newspaper circulated in the district where the firm is located.

The Respondent contended that he had retired from the Partnership Firm on 01.04.2015, and hence, could not be held liable for the dishonoured cheques issued later. The High Court accepted this contention, holding that the Respondent had ceased to be a partner on the date of issuance of the cheques and thus could not be prosecuted under Section 138 NI Act.

The Court examined the statutory requirements for retirement and cessation of partnership. It found that the Respondent had not complied with the mandatory provisions of the Partnership Act. Specifically, the Respondent had failed to:

• Ensure that the retirement was properly intimated to the Registrar of Firms as mandated by Sections 62 and 63.
• Publish the requisite public notice as required under Section 72.

The Court observed that the entry in the Register of Firms indicating the Respondent's cessation was made only on 20.10.2020, which was after the issuance of the cheques and the legal notice. The absence of compliance with the statutory procedures rendered the Respondent's claim of retirement ineffective in law.

The Court further emphasized that mere execution of a retirement deed or agreement among partners is insufficient to discharge liability unless the statutory formalities are complied with. Consequently, the Respondent's plea of cessation was found unsustainable.

Issue 2: Applicability of Section 138 NI Act Liability to the Respondent Despite Cheques Being Signed by Another Partner

Section 138 NI Act imposes criminal liability on persons responsible for the dishonour of cheques issued for discharge of legally enforceable debt or liability. The Court analyzed whether the Respondent could be held liable even though the cheques were signed by another partner, S. Yuvaraju (Accused No.2).

The complaint averred that the Respondent was actively involved in the day-to-day affairs of the Partnership Firm and was present when the cheques were signed. Further, the Respondent and another partner had assured repayment of the amount. These allegations satisfied the conditions under Section 141 of the NI Act, which extends liability to partners involved in the firm's affairs.

The Court reasoned that the Respondent could not absolve himself of liability by merely pointing to the signature of another partner on the cheques. The collective involvement and assurances linked him to the debt and the dishonour of the cheques. Therefore, the Respondent remained liable under Section 138 NI Act.

Issue 3: Jurisdiction and Appropriateness of Deciding Disputed Factual Questions under Section 482 CrPC

Section 482 CrPC confers inherent powers on the High Court to prevent abuse of process or to secure ends of justice but does not permit trial of disputed questions of fact without evidence.

The Court noted that the question of whether the Respondent had validly retired and ceased to be a partner involved mixed questions of law and fact, requiring evidence to be led by the parties. The High Court had prematurely accepted the Respondent's plea on the basis of pleadings without evidence, thereby exceeding its jurisdiction under Section 482 CrPC.

The Court held that such factual disputes cannot be decided at the stage of a petition under Section 482 CrPC and must be adjudicated through proper trial proceedings. Consequently, the High Court's order quashing the proceedings against the Respondent was set aside.

Issue 4: Effect of Non-compliance with Statutory Formalities on Partner's Liability

The Court emphasized the mandatory nature of statutory formalities under the Partnership Act for any change in partnership composition. Non-compliance with Sections 32, 62, 63, and 72 means the partner remains liable for acts of the firm until proper notice and publication are effected.

The Court found that the Respondent had not complied with these requirements, including failure to publish a public notice of retirement, which is critical to inform third parties and creditors. This omission prevented the Respondent from escaping liability for the dishonoured cheques issued in the firm's name.

Significant Holdings:

"None of these requirements as provided and mandated for under the Statute, have been adhered to by Respondent No.1. Merely putting forth a resignation or the partners entering into an agreement or drafting a deed or/and accepting the resignation of a partner of the Firm is insufficient for discharging the liability of a partner of the Firm unless a proper entry to the said effect after the publication has been given effect to with the same, having been recorded in the Register of Firms in the office of the Registrar of Firms as provided for in Section 63 of Partnership Act."

"The findings, therefore, with regard to the Respondent being no longer a partner of Partnership Firm (Accused No. 1) on the date of the issuance of the cheques is unsustainable, as it is contrary to the mandate of the Statute and prima facie the factual aspect."

"All these aspects are mixed questions of fact and law touching on the anvil of disputed questions calling for proof by way of evidence, which cannot be gone into and decided in a proceeding under Section 482 CrPC."

"Simply because the cheques were signed by S. Yuvaraju (Accused No.2), who was the authorized signatory of the Partnership Firm (Accused No.1), does not discharge the liability of the Respondent."

"The Respondent cannot escape from the liability concerning the cheques which were issued by the Respondent."

The Court ultimately held that the High Court had erred in law by quashing the proceedings under Section 482 CrPC without evidence and restored the trial court proceedings, directing the trial court to proceed in accordance with law. It clarified that observations made were limited to jurisdictional issues and did not affect the merits of the case.