Kiran Raj

The Supreme Court of India Division Bench of Justice B.V. Nagarathna and Justice Satish Chandra Sharma held that the non-arraignment of a partnership firm as an accused and the absence of a statutory notice addressed to the firm under Section 138 of the Negotiable Instruments Act, 1881, do not invalidate a complaint against its partners. The Court stated that a firm is not a separate legal entity distinct from its partners and that the partners are jointly and severally liable for acts committed in the firm’s name. Setting aside the judgment of the Madras High Court, which had quashed the criminal complaint, the Court restored the complaint and permitted the appellant to implead the partnership firm as an accused.

The Court recorded that when a cheque is issued in the name of a partnership firm, the partners may still be held liable under Section 138 read with Section 141 of the Act, even if the firm itself is not named in the complaint. The Court directed that the omission could be cured by allowing the complainant to implead the firm, thereby allowing the appeal and restoring the complaint before the Trial Court.

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The criminal appeal arose from a judgment of the Madras High Court dated 26.02.2024, which quashed the complaint in STC No.1106/2022 filed under Section 138 of the Negotiable Instruments Act, 1881, on the ground that the statutory notice was not issued to the partnership firm and that the firm was not arraigned as an accused.

The appellant-complainant had filed a criminal complaint against the respondents, who were partners in the firm ‘Mouriya Coirs’, engaged in manufacturing coir products in Tamil Nadu. Between March 2019 and August 2019, the appellant advanced a loan of Rs.21,00,000/- to the respondents for business purposes through banking channels and cash. To discharge this liability, the first respondent issued a cheque dated 01.02.2021 drawn on Punjab National Bank, Pollachi, from the account maintained in the name of the partnership firm.

The cheque was returned dishonoured upon presentation due to the account being frozen. Subsequently, a statutory notice dated 01.03.2021 was sent to both respondents, seeking payment within the stipulated fifteen days. The complaint under Section 138 read with Section 142 of the Act was filed on 23.04.2021 before the Judicial Magistrate No.II, Pollachi.

The respondents approached the Madras High Court under Section 482 of the Code of Criminal Procedure, 1973, seeking quashing of the complaint on the ground that the firm, in whose name the cheque was drawn, was neither served with a statutory notice nor arraigned as an accused.

The High Court accepted the contention and quashed the complaint, holding that the requirements under Section 141 of the Act were not fulfilled. According to the High Court, since the cheque was issued on behalf of a firm, non-compliance with the requirement to arraign the firm as an accused rendered the complaint against the partners unsustainable.

The appellant preferred the present appeal before the Supreme Court, challenging the High Court’s decision. The appellant’s counsel submitted that a partnership firm is not a separate legal entity like a company and that partners are jointly and severally liable. He contended that proceedings against the partners alone were legally maintainable and sought restoration of the complaint.

The respondents’ senior counsel, however, submitted that under Section 141 of the Act, the firm is deemed to be a company, and a partner is deemed to be a director. Therefore, he contended, it was mandatory to issue statutory notice to the firm and also arraign it as an accused. He relied on judgments of the Supreme Court, including Aneeta Hada v. Godfather Travels & Tours (P) Ltd. and Dilip Hariramani v. Bank of Baroda, to support the view that failure to include the principal offender vitiates the prosecution against other persons.

The appellant distinguished these cases, arguing that they dealt with companies which are distinct legal entities. He submitted that in the case of partnership firms, the partners themselves constitute the firm, and their liability is not vicarious but joint and several.

The Supreme Court observed 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."

The Court further noted: "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."

The Court recorded that "a partnership firm, unlike a company registered under the Indian Companies Act or a limited liability partnership registered under the Limited Liability Partnership Act, 2008, is not a distinct legal entity and is only a compendium of its partners." It cited authoritative legal literature, including Pollock & Mulla and Lindley and Banks on Partnership, to support its conclusions.

Addressing the requirement of notice under Section 138, the Court stated: "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."

The Court drew a distinction with companies by stating: "Unlike a company, a partnership firm has no independent corporate existence and has no distinct legal persona independent of its partners." It also held that "when the offence is committed by such a firm, in substance, the offence is committed by the partners of the firm and not just the firm per se."

The Court examined the statutory provisions of Sections 25 and 26 of the Partnership Act, 1932, along with Sections 138 and 141 of the NI Act, and noted that a partner is jointly and severally liable for acts done by the firm.

On the question of statutory compliance, the Court observed: "Therefore, 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."

"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," the Court added.

Finally, the Court distinguished the earlier precedents cited by the respondents, noting that those cases involved companies, which are distinct from their directors. It held: "In law and in jurisprudence, when a partnership firm is proceeded against, in substance, the partners are liable and the said liability is joint and several and is not vicarious."

The Supreme Court issued the following directions:

The Court held that "the High Court was not right in rejecting or dismissing the complaint for the reason that the partnership firm was not arraigned as an accused in the complaint or that notice had not been issued to it under Section 138 of the Act." It allowed the complainant to cure the procedural defect by impleading the firm as an accused.

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The Court stated: "Permission is granted to arraign the partnership firm as an accused in the complaint." It further recorded that "the notice issued to the partners of the firm in the instant case shall be construed to be a notice issued to the partnership firm also viz., ‘Mouriya Coirs’."

The order of the High Court dated 26.02.2024 was accordingly set aside. The Court declared: "The complaint bearing STC No.1106/2022 is restored on the file of the Court of the learned Judicial Magistrate No. II, Pollachi."

"The trial court is directed to dispose of the complaint in accordance with law."

Accordingly, the appeal was allowed.

Case Title: Dhanasingh Prabhu vs. Chandrasekar & Another

Neutral Citation: 2025 INSC 831

Case Number: Criminal Appeal No. ____ of 2025 (Arising out of SLP (Crl.) No. 5706 of 2024)

Bench: Justice B.V. Nagarathna, Justice Satish Chandra Sharma