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2025 (5) TMI 930 - HC - Indian LawsDishonour of cheque - Application under Section 482 of the Cr.P.C. - presumption made under Section 139 of the N.I. Act - legality of summoning order under Section 138 of the Negotiable Instruments Act (N.I. Act) against the proprietor of a sole proprietorship firm - provisions contained under Section 141 of the N.I. Act - Not legally enforceable debt or liability - cheques issued as an advance and with regard to the misutilisation of the said cheque and playing fraud - HELD THAT - Apparently two cheques dated 12.03.2024 for an amount of Rs. 16, 24, 000/- and Rs. 6, 01, 800 stood drawn by the applicant which lastly on presentation in the Bank on 22.03.2024 stood disordered on 25.03.2024 which was followed by a statutory demand notice on 8.04.2024 which is stated to have been served upon the applicant on 12.04.2024 and a reply whereof was submitted by the applicant to the said statutory demand notice on 22.04.2024 and the complaint was lodged on 7.05.2024. Thus it becomes evidently clear that there has been procedured compliance of the provisions contained under Section 138 read with Section 142 of the N.I. Act. So far as the argument so sought to be raised by the applicant that the firm has not been summoned thus the proceedings are bound to fail is concerned the same is not convincible particularly in view of the fact that the firm M/s Mark Engineering as per the description given in the complaint and the present complaint is a proprietorship firm. There is a vast difference between proprietorship and partnership a partnership is an association of more than one person however sole proprietorship comprises only one person. Section 141 of the N.I. Act provides for offences by the companies and explanation (a) implies company which means any body corporate and includes a firm or other association of individuals and explanation (b) director in relation to the firm means of partnership in the firm. Importantly the firm in question is a sole proprietorship firm thus the concept of partnership firm and a company would not apply. However this Court is not required to test the said submissions while adjudicating on the same particularly at a summoning stage. What is relevant is the statutory presumption so made under Section 139 of the N.I. Act which is in the favour of the holder of the cheque. Nonetheless this Court is also not required to go into the aspect of the matter as to whether the cheque which has been dishonoured was any way linked or related to the contract or not which was terminated by the NHAI. This Court at the stage of summoning is not required to delve into the terms of the contract and also quantum of payment made or not and the impact of the cancellation of the contract as it would be at best in a defence or a matter of trial. Accordingly no case is made out. The application stands rejected .
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court in this matter are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of Summoning Proprietor vs. Firm under Section 141 of the N.I. Act Relevant Legal Framework and Precedents: Section 141 of the N.I. Act deals with offences by companies and firms, providing that the company or firm can be held liable, and its directors or partners can be summoned. Explanation (a) defines company to include firms and associations of individuals; Explanation (b) defines director in relation to a firm as a partner. However, the distinction between a sole proprietorship and a partnership firm is crucial, as a sole proprietorship is not a separate legal entity but an extension of the proprietor. Court's Interpretation and Reasoning: The Court observed that the firm in question is a sole proprietorship, not a partnership or company. Thus, the provisions of Section 141, which are designed for companies or partnership firms, do not apply to sole proprietorships. The proprietor is the legal entity for all intents and purposes. Key Evidence and Findings: The complaint and application describe the firm as a sole proprietorship. The Court relied on a prior decision distinguishing sole proprietorship from partnership firms, highlighting that the proprietor alone can be sued. Application of Law to Facts: Since the firm is a sole proprietorship, the summoning of the proprietor (applicant) is valid and proper. The failure to summon the firm as a separate entity is not a valid ground to quash the proceedings. Treatment of Competing Arguments: The applicant argued that the firm should have been summoned as per Section 141, but the Court rejected this, emphasizing the sole proprietorship status. Conclusion: The summoning order against the proprietor is legally sustainable. Issue 2: Maintainability of Complaint under Section 138 of the N.I. Act Relevant Legal Framework and Precedents: Section 138 imposes criminal liability for dishonour of cheques issued for discharge of debt or liability. Section 139 creates a presumption in favour of the holder that the cheque was issued for discharge of debt. The Apex Court's jurisprudence affirms that a proprietor or partner can sue in their own name even if the cheque is drawn in the firm's name. Court's Interpretation and Reasoning: The Court referred to a precedent explaining that whether the cheque was issued by a proprietorship or partnership firm, the proprietor or partner is the holder in due course and entitled to sue. The complaint is maintainable even if the cheque is drawn in the firm's name. Key Evidence and Findings: The complaint was filed by the proprietor of the firm, who is the rightful holder of the cheque. The statutory demand notice was issued and replied to, and the complaint was filed within time. Application of Law to Facts: The complaint meets procedural requirements and is maintainable against the proprietor under Section 138. Treatment of Competing Arguments: The applicant contended that no legally enforceable debt existed, but the Court held that such factual disputes are to be decided at trial, not at the summoning stage. Conclusion: The complaint under Section 138 is maintainable and the summoning order is valid. Issue 3: Whether the Cheques Were Issued in Discharge of a Legally Enforceable Debt or as Security/Advance Relevant Legal Framework and Precedents: The Apex Court in M/s Womb Laboratories Pvt. Ltd. vs. Vijay Ahuja & Another clarified that the question whether cheques were given as security or discharge of debt is a matter of defence and trial, not for summoning stage adjudication. The presumption under Section 139 stands unless rebutted by evidence at trial. Court's Interpretation and Reasoning: The Court noted that the applicant's reply to the statutory demand notice admitted issuance of cheques as security for a purchase order and partial execution of the order. However, whether the cheques were security or payment is a triable issue. Key Evidence and Findings: The applicant's reply to the demand notice detailed negotiations, partial supply, and payments made, indicating a commercial transaction with cheques issued as security. Application of Law to Facts: The Court held that the defence of cheques being security cannot be adjudicated at the summoning stage; it is a matter for trial. Treatment of Competing Arguments: The applicant's contention that the cheques were misused or issued as security was acknowledged but deferred for trial. Conclusion: The question of whether the cheques were issued as security or discharge of debt is a triable issue and does not vitiate the summoning order. Issue 4: Impact of Termination of Contract on Maintainability of Complaint Relevant Legal Framework and Precedents: The termination of a contract prior to dishonour of cheques may affect the existence of debt or liability but is a factual issue to be examined during trial. Court's Interpretation and Reasoning: The Court observed that the contract between the parties was terminated by the National Highway Authority of India on 28.4.2022. However, the complaint relates to works executed during 2019-20 and payments due. The Court held that the impact of contract termination on the cheque liability is a matter for trial. Key Evidence and Findings: The complaint and statutory notice refer to dues for executed works. The applicant also lodged a complaint alleging misuse of cheques, indicating ongoing disputes. Application of Law to Facts: The Court declined to examine the effect of contract termination at the summoning stage, emphasizing that such factual disputes are outside the scope of Section 138 proceedings at this stage. Treatment of Competing Arguments: The applicant's argument regarding contract termination was acknowledged but held not to warrant quashing of proceedings. Conclusion: The termination of contract does not affect the maintainability of the complaint at the summoning stage. Issue 5: Scope of Court's Jurisdiction at Summoning Stage under Section 138 Relevant Legal Framework and Precedents: The Court's power under Section 482 Cr.P.C. to quash proceedings is limited and sparingly exercised. At the summoning stage, the Court is not to delve into the merits or factual disputes but to ensure procedural compliance and prima facie validity. Court's Interpretation and Reasoning: The Court reiterated that questions relating to the contract terms, payments made, or the nature of cheques are matters of trial. The statutory presumption under Section 139 favors the complainant, and unless there is a clear illegality or procedural defect, the Court should not interfere. Key Evidence and Findings: Procedural compliance was established: dishonour of cheques, demand notice, reply, and complaint within prescribed time. Application of Law to Facts: The Court found no ground to quash the complaint or summoning order at this stage. Treatment of Competing Arguments: The applicant's factual disputes were noted but deferred for trial. Conclusion: The Court's jurisdiction to quash at summoning stage is limited; no interference warranted here. 3. SIGNIFICANT HOLDINGS "Section 141 of the N.I. Act provides for offences by the companies and explanation (a) implies company which means any body corporate and includes a firm or other association of individuals and explanation (b), director in relation to the firm means of partnership in the firm. Importantly, the firm in question is a sole proprietorship firm, thus, the concept of partnership firm and a company would not apply." "If the cheque is issued in the name of a firm, whether proprietorship or partnership firm, the proprietor or the partner as the case may be, becomes the holder in due course and he can sue in his own name and it is not necessary for him to sue in a trading name, though others can sue such firm in the trading name." "The question as to whether the cheque was by way of security or not is a question of trial as enunciated by the Hon'ble Apex Court in the case of M/s Womb Laboratories Private Limited Vs. Vijay Ahuja & another (2022) 18 SCC 631 has observed as under:- 'In our opinion, the High Court has muddled the entire issue. The averment in the complaint does indicate that the signed cheques were handed over by the accused to the complainant. The cheques were given by way of security, is a matter of defence. Further, it was not for the discharge of any debt or any liability is also a matter of defence. The relevant facts to countenance the defence will have to be proved - that such security could not be treated as debt or other liability of the accused. That would be a triable issue. We say so because, handing over of the cheques by way of security per se would not extricate the accused from the discharge of liability arising from such cheques.'" "This Court at the stage of summoning is not required to delve into the terms of the contract and also quantum of payment made or not and the impact of the cancellation of the contract as it would be at best in a defence or a matter of trial." The Court concluded that the statutory requirements under Sections 138 and 142 of the N.I. Act were complied with, the complaint is maintainable against the proprietor of the sole proprietorship firm, and the factual disputes raised by the applicant are matters for trial. Accordingly, the application under Section 482 Cr.P.C. to quash the complaint and summoning order was rejected.
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