2025 (5) TMI 1899 - HC - Indian Laws

Validity of Single Notice and Single Complaint for Dishonour of Multiple Cheques - Non- fulfilment of compliance under Section 141 of N.I. Act - liability of the proprietor in regard to in charge and day to day working of the business of the firm - HELD THAT - Having considered the provision of Section 141 of N.I. Act 1881 there is no manner of doubt in the mind of this Court that Section 141 of N.I. Act 1881 will not be attracted in case of propriety concern which is different to a company and partnership firm which is clear from the explanation appended to Section 141 of N.I. Act 1881. This Court is convinced that trial court committed no illegality in summoning the accused-applicants vide summoning order as the essential ingredients of Section 138 of N.I. Act 1881 are made out. The case laws cited by learned counsel for the applicants is of no help to him while case cited by learned counsel for respondent no.2 is applicable to the present set of facts. Thus this Court is of the view that the C482 application deserves to be dismissed. Accordingly the present application is dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

(a) Whether a single notice and a single complaint under Section 138 of the Negotiable Instruments Act, 1881 (N.I. Act) can be filed in respect of dishonour of multiple cheques issued on different dates by the same drawer to the same payee.

(b) Whether the provisions of Section 141 of the N.I. Act, which deal with offences by companies, are applicable to a proprietary concern carrying on business in the name of a firm, and if so, whether the summons issued without compliance with Section 141 are valid.

(c) Whether the impugned summoning order issued under Section 138 of the N.I. Act against the accused/applicants, who are proprietors of a firm, is legally sustainable or requires quashing.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Validity of Single Notice and Single Complaint for Dishonour of Multiple Cheques

Relevant Legal Framework and Precedents: Section 138 of the N.I. Act provides for penal consequences in the event of dishonour of a cheque for insufficiency of funds or other reasons. The Act does not explicitly prohibit filing a single complaint for multiple dishonoured cheques issued by the same drawer to the same payee. The principle against multiplicity of proceedings is a recognized judicial policy.

Court's Interpretation and Reasoning: The Court noted that all three cheques were issued by the same party (the applicant) in favour of the complainant and were dishonoured on the same ground-"stop payment by drawer." The single legal notice dated 13.02.2019 was served upon the applicant, and the complaint was filed thereafter. The Court accepted the respondent's argument that filing a single complaint based on a single notice for multiple dishonoured cheques is permissible and prevents multiplicity of litigation.

Application of Law to Facts: Since the dishonour of all three cheques occurred on the same date and the notice was served once for all, the Court found no illegality in filing a single complaint under Section 138 of the N.I. Act.

Treatment of Competing Arguments: The applicants contended that a single notice/complaint would not suffice for multiple cheques of different dates. The Court rejected this argument as misconceived, emphasizing the practical and judicial policy considerations favoring consolidation.

Conclusion: The Court concluded that a single notice and complaint for dishonour of multiple cheques issued by the same drawer to the same payee is legally valid.

Issue (b): Applicability of Section 141 of the N.I. Act to Proprietary Concerns and Requirement of Summoning under This Provision

Relevant Legal Framework and Precedents: Section 141 of the N.I. Act deals with offences committed by companies and provides that persons in charge and responsible for the conduct of business at the time of offence shall be deemed guilty and liable to be proceeded against. The Explanation to Section 141 clarifies that "company" includes a firm or other association of individuals, and "director" in relation to a firm means a partner in the firm. However, a proprietary concern is not equated with a company or partnership firm under this provision.

Precedents relied upon include the Supreme Court's judgment in Raghu Lakshminarayan Vs. M/s Fine Tubes, which distinguished proprietary concerns from companies and partnership firms and held that compliance with Section 141 is mandatory only for companies and partnership firms, not for proprietorships.

Court's Interpretation and Reasoning: The Court carefully examined the language of Section 141 and the Explanation thereto, noting that a proprietary concern stands on a different footing from a company or partnership firm. It emphasized that a person carrying on business as a proprietor is solely responsible for the conduct of the business and that Section 141 does not apply to such proprietary concerns.

Key Evidence and Findings: The applicants were carrying on business in the name of a firm, but as proprietors, they alone were responsible for the business affairs. The complaint was filed against the proprietor and not against a company or partnership firm.

Application of Law to Facts: Since the applicants were proprietors and not a company or partnership firm, the Court held that compliance with Section 141 was not mandatory. Therefore, the absence of summons to a company or firm did not vitiate the proceedings.

Treatment of Competing Arguments: The applicants contended that the proceedings were liable to be quashed for non-compliance with Section 141, relying on judgments where summons were not issued to companies but only to directors. The Court distinguished those cases on facts, holding that those decisions related to companies or partnership firms, not proprietorships.

Conclusion: The Court concluded that Section 141 of the N.I. Act is not attracted in the case of a proprietary concern and that the trial court committed no illegality in summoning the accused proprietors.

Issue (c): Legality of Summoning Order under Section 138 of the N.I. Act against Proprietors of the Firm

Relevant Legal Framework and Precedents: Section 138 of the N.I. Act mandates penal consequences for dishonour of cheques. The court must issue summons if the complaint discloses a prima facie case. The summoning order must be based on the essential ingredients of Section 138.

Court's Interpretation and Reasoning: The Court examined the complaint, the affidavit supporting the application, and the counter affidavit. It found that the essential ingredients of Section 138 were satisfied: the cheque(s) were issued for discharge of a legally enforceable debt, were dishonoured, and the notice was duly served.

Key Evidence and Findings: The respondent supplied cattle fodder worth Rs. 40,00,000 to the applicants, who issued three cheques as payment. The cheques were dishonoured due to "stop payment" instructions. The respondent served a registered notice which was ignored. The complaint was filed thereafter.

Application of Law to Facts: The Court applied the statutory provisions and found that the complaint disclosed a prima facie case, justifying issuance of summons.

Treatment of Competing Arguments: The applicants challenged the summoning order on grounds of non-compliance with Section 141 and invalidity of a single complaint for multiple cheques. Both contentions were rejected as explained above.

Conclusion: The Court held that the summoning order was legally sustainable and that no grounds existed for quashing the proceedings.

3. SIGNIFICANT HOLDINGS

"Section 141 of the N.I. Act, 1881, will not be attracted in case of proprietary concern, which is different to a company and partnership firm which is clear from the explanation appended to Section 141 of N.I. Act, 1881."

"A proprietary concern is not a company. Company in terms of the Explanation appended to Section 141 of the Negotiable Instruments Act, means any body corporate and includes a firm or other association of individuals. Director has been defined to mean in relation to a firm, a partner in the firm. Thus, whereas in relation to a company, incorporated and registered under the Companies Act, 1956 or any other statute, a person as a Director must come within the purview of the said description, so far as a firm is concerned, the same would carry the same meaning as contained in the Partnership Act."

"There is no illegality in filing the single complaint on single notice of dishonour of three cheques. It will prevent the multiplicity of the case."

"The essential ingredients of Section 138 of N.I. Act, 1881 are made out and the trial court committed no illegality in summoning the accused-applicants."

Core principles established include:

• Section 141 applies only to companies and partnership firms, not to proprietorship concerns.
• A single legal notice and complaint can be filed for dishonour of multiple cheques issued by the same drawer to the same payee.
• Summoning under Section 138 is justified if the complaint discloses a prima facie case.

Final determinations:

• The impugned summoning order dated 01.05.2019 under Section 138 of the N.I. Act was upheld.
• The application for quashing the proceedings was dismissed.
• The interim order granted earlier was vacated.