Prosecution U/s. 138 NI Act Against Managing Partner Will Not Succeed If Partnership Firm Is Not Arrayed As Party: Kerala HC

While setting aside the conviction as well as sentence imposed by the Trial court and the Appellate Court, the Kerala High Court agreed that in order to succeed a prosecution under Section 138 of the N.I. Act, the firm must be arrayed as a party and otherwise the entire prosecution is vitiated.

A Single Judge Bench of Justice A. Badharudeen observed that “In the present case, the trial court tried a case against the accused where the cheque belongs to a firm. In fact, in the present case, the firm Ganga Marbles and Granites, should have been arrayed as an accused as the principal offender and then the accused/revision petitioner herein should have been arrayed as the offender under principles of vicarious liability to succeed a prosecution”.

Referring to the decision in the case of P.I. Moideen Kutty v. Abdul Rasheed V. and Another [2023 ICO 894], the Bench reiterated that unless the company or firm has committed an offense punishable under Section 138 of the N.I. Act as a principal accused, persons mentioned in subsection (1) and (2) of Section 141 of the N.I. Act would not be liable to be convicted on the basis of the principles of vicarious liability.

Advocate S. Rajeev appeared for the petitioner whereas Advocate Sunil N. Shenoi appeared for the respondent.

The brief facts of the case were that a cheque for Rs.2,40,000/- was issued by the accused in favor of the complainant which got dishonoured for the reason of “exceeds arrangement”. A legal notice was issued demanding the said amount by the complainant. Also, a prosecution against the accused alleging the commission of an offense punishable under Section 138 of the Negotiable Instruments Act was launched. Consequently, the accused was held guilty by the court and sentenced to undergo simple imprisonment till the raising of the Court and to pay a fine of Rs.2,24,000/- as compensation to the complainant. In default of payment of fine, simple imprisonment for two months also was imposed. When the matter was taken in appeal, the Special Judge confirmed the conviction as well as the sentence imposed by the trial court.

After considering the submission, the Bench found that the cheque was issued for and on behalf of “Ganga Marbles and Granites” by the Managing Partner.

On perusal of the copy of the complaint, it could be gathered that one Mr. Binu alone is arrayed as the accused and the firm is not arrayed as an accused, added the Bench.

The Bench then highlighted that explanation to Section 141 of the N.I. Act provides that for the purpose of this Section, "company" means any body-corporate and includes a firm or other association of Individuals; and "director", in relation to a firm, means a partner in the firm.

Therefore, ‘Ganga Marbles and Granites’, a partnership firm come within the definition of Company as defined under Section 141 of the N.I. Act, shall be deemed to be guilty of the offence and shall be liable to be proceeded and punished accordingly, added the Bench.

Accordingly, the High Court acquitted the accused and set aside the sentence imposed by the trial court as well as the Appellate court.

Cause Title: Binu v. State of Kerala and Anr. [Neutral Citation: 2023/ KER/ 46337]

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