Dhanasingh Prabhu v. Chandrasekar: Partnership Firm Need Not be an Accused in S. 138 NI Act Complaint

If a partner of the firm commits any breach, all the partners would become liable for the consequent penalties.

Saji Koduvath, Advocate, Kottayam

Contents in a Nutshell

Supreme Court of India (Nagarathna, Satish Chandra Sharma, JJ.) held in Dhanasingh Prabhu v. Chandrasekar(2025 INSC 831) –

• Partnership firm need not be an accused in Section 138, NI Act Complaint.
• Notice under Section 138 of the Act need not been issued to it.

It is also observed in this decision –

• If a partner of the firm commits any breach, all the partners would become liable for the consequent penalties, just as the firm would be liable.

Genesis of the Controversy

Section 141 of the NI Act speaks as to ‘Offences by Companies‘. It says:

• “If the person committing an offence under Section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly …”

Then it is explained in this Section as under:

• (a) “company” means any body corporate and includes a firm or other association of individuals; and
• (b) “director”, in relation to a firm, means a partner in the firm.”

The scope of the explanation (“company means any body corporate and includes a firm or other association of individuals”) was the point that came for consideration in this case.

That is, is it necessary –

• (i) to join the firm as a party in Section 138 Complaint, and
• (ii) to include all the partners in the complaint as accused?

Submissions of the Appellant

• A partnership firm differentiates itself from other entities with limited liability, such as a company.
• The partners of a partnership firm alone are liable to be prosecuted individually.
• The partnership firm cannot be arraigned as an accused or being issued notice under Section 138 of the Act.

Arguments on Section 141 of the Act

• .(i) Firstly, unlike a company which is a separate legal entity from its shareholders, a partnership is only a compendious name for its partners. That the partners are jointly and severally liable for the profit and loss of the partnership firm and further, in a company, its shareholders have limited liability, whereas in a partnership firm, the partners have unlimited liability.
• (ii) Secondly, under Section 42 of the Partnership Act, 1932, subject to contract between the partners, a partnership firm gets dissolved on events specified in sub-sections (a) to (d) of Section 42.
• (iii) Thirdly, a partnership firm cannot on its own create or enter into any contract and that either those partner(s) authorized by all the partners or all the partners of the firm, must execute the contract.
• Further, subject to the partnership agreement, a partnership firm is made party to a contract only at the time of execution in order to make all the  partners and the firm jointly and severally liable to the contract.
• (iv) Fourthly, though Order XXX Rules 1 and 2 of the Code of Civil Procedure, 1908 allow for suing of partners in the name of the firm, it is only a convenient method for referring to the persons who constitute the firm at the time of the accruing of the cause of action and that a decree in favour of or against a firm, in the name of the firm, has the same effect as a decree in favour of or against all the partners.
• (v) Fifthly, unlike a limited liability partnership or a company, an ordinary partnership is not a juristic person as such, and that the real legal entity is the partners themselves. That in an agreement involving a partnership firm, all partners in their individual capacity ought to additionally be part of such agreement as parties and execute it in their individual capacity. This is because a partnership firm has no separate legal existence of its own. 

Submissions of the respondents (Sr. Advocate  S. Nagamuthu)

• Section 141(1) of the Act does not define the expression ‘company’, but Explanation (a) states that a “company” means any body corporate and includes a firm or other association of individuals.
• The terms ‘association of persons’ or ‘body of individuals’ have a legal connotation and concern an entity having certain defined rights and duties as opposed to a group of persons or body of individuals in the literal sense. In this regard, the learned senior counsel submitted that a partnership firm is not an association of persons in the literal sense. (He referred to Section 4 of the Partnership Act which defines the expression ‘partnership’ and the terms ‘partners’, ‘firm’, and ‘firm name’ to submit that the expression ‘company’ in section 141 of the Act includes a partnership firm by a legal fiction.) 
• The expression ‘person’ in Section 141 of the Act includes a company as well as a natural person. Extending the above argument, he submitted that the expression ‘person’ would also include a partnership firm, as Section 141 of the Act deems a partnership firm to be a company.
• That this deeming fiction is also evident in Explanation (b) to Section 141 of the Act, which defines the expression “director”, in relation to a firm, to mean a partner in the firm.
• Thus, a firm is deemed to be a company and if a firm commits an offence under Section 138 of the Act, and firm should also be added as an accused and found guilty.
• The partners of a firm should be arraigned as accused along with the firm and such partners should be liable for punishment vicariously/constructively for the offence committed by the firm.
• In the absence of the firm being issued the statutory notice or arraigned as an accused in the complaint, the same was not maintainable at all.

The senior counsel, Sri S. Nagamuthu referred the following  judgments:

1.  Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661.  

It is a judgment of a three Judge Bench. The core question considered was, whether, in view of Section 141 of the Act, a company could have been made liable for prosecution without being impleaded as an accused, and whether a director of a company could have been prosecuted for offences punishable under the provisions of the Act without the company being arraigned as an accused. It was observed that the commission of an offence by a company is an express condition precedent to attract the vicarious liability of others such as directors or employees of a company. Thus, the words “as well as the company” appearing in the Section make it absolutely clear that when the company could 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. This is because a company is a separate juristic person and thus the imperative for arraigning the company as an accused for maintaining the prosecution under Section 141 of the Act. It was therefore held that it is only when the company is held to be guilty of the offence under Section 138 read with Section 141 of the Act that the other categories of offenders could also be proceeded against on the touchstone of the principle of vicarious liability as the same has been mandated by Section 141 of the Act itself. It is necessary to note that the company in the aforesaid case was a private limited company incorporated under the provisions of the Companies Act, 1956.

The three Judge Bench followed the ratio of the judgment in State of Madras vs. C.V. Parekh, (1970) 3 SCC 491 and opined that the judgment in Sheoratan Agarwal vs. State of M.P., (1984) 4 SCC 352 did not lay down the correct law and was therefore overruled. It was further observed that the decision of this Court in Anil Hada vs. Indian Acrylic Ltd., (2000) 1 SCC 1 was also not the correct law insofar as it stated that the director or any other officer of a company can be prosecuted without impleadment of the company. It was further observed that the judgment of this Court in U.P. Pollution Control Board vs. Modi Distillery, (1987) 3 SCC 684 was also restricted to its own facts.

• Note: In this case (Dhanasingh Prabhu v. Chandrasekar) it was held that Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661, was not applicable, inasmuch as the it  concerned the vicarious liability of the directors of a company when the company itself was not prosecuted against or made liable; and there is distinction between a company and a partnership firm

2.  Dilip Hariramani vs. Bank of Baroda, 2022 SCC OnLine SC 579

The issues raised were

• .(i) whether the appellant therein, being a non-signatory to the dishonoured cheque, could have been convicted under Section 138 read with Section 141 of the Act on the basis that there was vicarious criminal liability of a partner; and
• (ii) whether the partner could be convicted and held to be vicariously liable when the partnership firm was not made an accused and therefore not tried for a primary or substantive offence.

The facts of the case were the following –

• The respondent-Bank of Baroda had granted term loan on cash credit facility to a partnership firm- M/s Global Packaging and the repayment of the loan by the firm was through its authorized signatory who had issued three cheques which were dishonoured on presentation due to insufficient funds.
• A demand notice was issued to the authorized signatory under Section 138 of the Act by the bank which later filed the complaint against the authorized signatory as well as the appellant therein but the firm was not made an accused.
• The authorized signatory of the cheques of the appellant therein was shown as a partner of the firm.
• It was contended that there was no assertion or statement in the complaint made to establish the vicarious liability of the appellant therein. Both the accused were convicted by the trial court.
• The appeal preferred before the District and Sessions Court as well as the High Court affirmed the finding on merit.
• The Supreme  Court noted the following:
• .i. The Demand Notice issued on 04.11.2015 by the bank through its Bank Manager was served solely to the authorized signatory of the firm.
• ii. The complaint dated 07.12.2015 under Section 138 of the Act was made against the authorized signatory as well as the appellant therein.
• iii. The partnership firm was not made an accused or ever summoned to be tried for the offence
• After referring to Aneeta Hada, the Apex Court considered Section 141 of the Act which imposes vicarious liability by a deeming fiction which presupposes and requires the commission of the offence by the company or firm. It was observed thus:
• “14. … unless the company or firm has committed the offence as a principal accused, the person mentioned in sub-section (1) or (2) would not be liable and convicted as vicariously liable. Section 141 of the Act extends vicarious criminal liability to officers associated with the company or firm when the one of the twin requirements of Section 141 has been satisfied, which person(s) then, by deeming fiction, is made vicariously liable and punished. However, such vicarious liability arises only when the company or firm commit the offence as a primary offender”.
• In the above context, the appeal was allowed and the conviction of the appellant therein was set aside.

Analysis in Dhanasingh Prabhu v. Chandrasekar

In this case it was held as under:

• “6.5. …. The reason as to why relief was granted by this Court in Dilip Hariramani was because it was observed that the partnership firm was not said to have committed the offence and was not made the principal accused. In such a circumstance, there could be no vicarious criminal liability to the officers associated with the company or firm. It is necessary to note that the complainant bank in the aforesaid case had not served the notice to the appellant therein but it was served only on the authorized signatory of the firm. Hence, relief was granted by this Court to the appellant therein. On the other hand, in the instant case, the notice was sent by the complainant to both the partners of the firm. 
• 6.6 We are of the view that having regard to the distinct facts in the aforesaid case, relief was granted by this Court but the present case cannot be decided on the basis of the aforesaid judgment.
• The three significant facts noted in the aforesaid judgment must be contrasted with the facts which arise in the present case, which are as under:
  • .i. Notice of the complainant was not issued only to one partner or only to the authorized signatory of the partnership firm. It was issued to both partners in the present case.
  • ii. The cheque was issued in the name of partnership firm “Mouriya Coirs”. However both the partners were issued notice by the complainant which was not so in the aforesaid case, although the partnership firm was not issued any statutory notice.
  • iii. The complaint has been made against both the partners even though the firm has not been made an accused in the complaint in the instant case. 
• 6.7 In fact, in an earlier judgement G. Ramesh vs. Kanike Harish Kumar Ujwal, (2020) 17 SCC 239 which is also a judgment of a two Judge Bench of this Court, it was noted from the complaint considered in the said case that the same contained a sufficient description of
  • (i) nature of the partnership;
  • (ii) the business which was being carried out; and
  • (iii) role of each of the accused in the conduct of the business and specifically in relation to the transaction which took place with the complainant. In the averments, the accused had been referred to in the plural sense.
• This Court observed that Section 141 uses the expression “company” so as to include a firm or association of a persons. That the first accused in the said case was a partnership firm of which the remaining two accused were the partners which fact had been missed by the High Court and therefore the appeal was allowed.
• Paragraphs 11 and 12 of the judgment read as under:
  • “11. In terms of the explanation to Section 141, the expression “company” has been defined to mean any body corporate and to include a firm or other association of individuals. Sub-section (1) of Section 141 postulates that where an offence is committed under Section 138 by a company, the company as well as every person who, at the time when the offence was  committed, was in charge of and was responsible to the company for the conduct of the business shall be deemed to be guilty of the offence.
  • 12. In determining as to whether the requirements of the above provision have been fulfilled, it is necessary to bear in mind the principle of law that a partnership is a compendious expression to denote the partners who comprise of the firm. By the deeming fiction in Explanation (a) the expression company is defined to include a firm.”
• 6.8 While holding that Section 141 is a deeming provision, it was also observed that a partnership is a compendious expression to denote the partners who comprise the firm which means that a firm without a reference to its partners has no juristic identity in law. By a deeming fiction, in Explanation (a) to Section 141, the expression “company” has been defined to include a firm. Since the High Court had lost sight of the fact that a partnership firm has to be read within the meaning of Section 141 which uses the expression “company”, the appeal filed by the complainant therein was allowed.”

Even if partnership firm is a juristic entity, it is not distinct from partners

The Court (Dhanasingh Prabhu v. Chandrasekar) held as under:

• “On considering the aforesaid judgments, we observe that even if we have to come to the conclusion that the juristic entity i.e., the partnership firm is the primary accused in the instant case it would be necessary for us to also state that such a juristic entity, namely, a partnership firm is not distinct from the partners who comprise the partnership. In other words, if the complainant had proceeded only against the partnership firm and not the partners it possibly could have been held that the partnership firm in the absence of its partners is not a complete juristic entity which can be recognised in law and therefore cannot be proceeded against. On the other hand, in the instant case the complainant has proceeded against the two partners. The complainant is aware of the fact that the cheque has been issued in the name of the partnership firm “Mouriya Coirs” and has been signed by one of the partners. The complainant has proceeded against the partners only without arraigning the partnership firm as an accused. It is necessary to reiterate that a partnership firm in the absence of its partners cannot at all be considered to be a juristic entity in law. On the other hand, the partners who form a partnership firm are personally liable in law along with the partnership firm. It is a case of joint and several liability and not vicarious liability as such. Therefore, if the complainant herein has proceeded only against the partners and not against the partnership firm, we think it is not something which would go to the root of the matter so as to dismiss the complaint on that ground. Rather, opportunity could have been given to the complainant to implead the partnership firm also as an accused in the complaint even though no notice was sent specifically in the name of the partnership. 6.10 Alternatively, notice to the partners/accused could have been construed as notice to the partnership firm also. We say so for the reason that unlike a company which is a separate juristic entity from its directors thereof, a partnership firm comprises of its partners who are the persons directly liable on behalf of the partnership firm and by themselves. Therefore, a partnership firm, in the absence of the partners being arraigned as accused would not serve the purpose of the case and would be contrary to law. On the other hand, even in the absence of making a partnership firm an accused in the complaint, the partners being made the accused would be sufficient to make them liable inasmuch as the partnership firm without the partners is of no consequence and is not recognised in law. This is because in the case of a partnership firm, the said juristic entity is always understood as a compendious term namely, the partnership firm along with its partners. Therefore, if the appellant-complainant had proceeded only against the partnership firm and not its partners then possibly the respondents would have been right in contending that the complaint was not maintainable but here the case is reversed. The complainant herein has not arraigned the firm but has arraigned the partners of the firm as accused and has also issued notice to them; therefore, we find that the defect, if any, is not significant or incurable in these circumstances. Permission is therefore to be granted to the complainant to arraign the partnership firm also as an accused in the complaint. Moreover, the cheque was issued in the name of the firm and signed by one of the partners, for and on behalf of the other also, therefore, the liability is deemed to be on both the partners of the firm.”

Liability of Partners

The Court (Dhanasingh Prabhu v. Chandrasekar) held as under:

• “7.19 The liability of partners for the debts of the business is unlimited and they are jointly and severally liable for all business obligations of the partnership firm. Sections 25 and 26 of the Partnership Act are relevant in this regard, which are reproduced as under:
  • “25. Liability of a partner for acts of the firm.—Every partner is liable, jointly with all the other partners and also severally, for all acts of the firm done while he is a partner.
  • 26. Liability of the firm for wrongful acts of a partner.—Where, by the wrongful act or omission of a partner acting in the ordinary course of the business of a firm, or with the authority of his partners, loss or injury is caused to any third party, or any penalty is incurred, the firm is liable therefor to the same extent as the partner.” 
• “Section 25 provides that every partner is liable jointly with all the other partners and also severally for all acts of the firm done by the partner. Since a firm is not a legal entity but only a collective name for all the partners, it does not have any legal existence apart from its partners. Therefore, any liability of a firm has the same effect of a liability against the partners. This is because, the partners remain liable jointly and severally for all acts of the firm, vide Dena Bank vs. Bikhabhai Prabhudas Parekh and Co., (2000) 5 SCC 694.
• 7.20. Moreover, the partners of a firm have unlimited liability to the creditors of the firm. This is as opposed to a limited company or a limited liability partnership, wherein the liability of the directors or the shareholders is to the extent of their share in the limited company or limited liability partnership and limited to the nominal value of the shares held by them or the amount guaranteed by the shareholder when it comes to a company. Thus, the debt of the firm is the personal debt of a partner and the debt of the firm has to be incurred by each partner as a financial personal liability.
• 7.21. Insofar as criminal liability is concerned, once it is established that an illegal act has been committed by the firm or its partners, then the partners will be jointly liable for it.
• Moreover, the act constituting an offence will also have to be decided with reference to the statute creating such an offence i.e. the Negotiable Instruments Act, which is the Act under consideration. When Section 25 of the Partnership Act is read together with Section 145 of the Act, in the context of dishonour of a cheque, the partner of a firm who is also liable jointly with a firm, can however rebut the statutory presumption.
• 7.22. Conversely, Section 26 states that where by the wrongful act or omission of a partner, acting in the ordinary course of the business of a firm, or with the authority of his partners, loss or injuries are caused to any third party, or any penalties are incurred, the firm is liable therefore to the same extent as the partner. The liability of the firm for acts done by the partner would arise when such acts are done in the ordinary course of the business of the firm.
• 7.23. Moreover, since the firm by itself cannot transact any business, if a partner of the firm commits any breach, all the partners would become liable for the consequent penalties, just as the firm would be liable. Further, if a penalty is imposed on a partnership firm for contravention of a statute, it amounts to levy of penalty on the partners also and there is no separate or independent penalty on the partners for the said contravention.
• 7.24. However, the liability of a shareholder in a company is limited to the nominal value of shares held by them or the amount guaranteed by the shareholder. The separate property of the shareholder is beyond a creditor seeking to enforce its dues against the company.”

End notes

Section 138 of the NI Act reads as under:

• “138. Dishonour of cheque for insufficiency, etc., of funds in the account. — Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both:

Provided that nothing contained in this section shall apply unless—

• .(a) the cheque has been presented to the bank within a period of six months* from the date on which it is drawn or within the period of its validity, whichever is earlier;
• (b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
• (c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or as the case may be, to the holder in due course of the cheque within fifteen days of the receipt of the said notice.
• Explanation.—For the purposes of this section, “debt or other liability” means a legally enforceable debt or other liability.
• xxx

Section 141 of the NI Act reads as under:

• 141. Offences by companies.— (1) If the person committing an offence under Section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:
• Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he  had exercised all due diligence to prevent the commission of such offence.
• Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this chapter.
• (2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
• Explanation.—For the purposes of this section,—
• (a)“company” means any body corporate and includes a firm or other association of individuals; and
• (b) “director”, in relation to a firm, means a partner in the firm.”

Conclusion: