Firm Should Be Arrayed As Accused In Complaint U/s. 138 Of NI Act If Dishonored Cheque Belonged To Firm: Kerala High Court

Having found that the cheque is issued in the name of “Thennala Enterprise”, a partnership firm and is signed by the Managing partner, the firm must be arrayed as a party to succeed a prosecution under Section 138 of the N.I. Act, the Kerala High Court held that the complaint filed by the complainant against the accused/revision petitioner without arraying the firm as an accused would not sustain.

The High Court held so, after referring to the decision of Apex Court in in Pawan Kumar Goel v. State of Uttar Pradesh [2022 SCC OnLine SC 1598], wherein it was held that if the complainant fails to make specific averments against the company in the complaint alleging commission of an offence punishable under Section 138 of the N.I. Act, the same cannot be rectified by taking recourse to general principles of criminal jurisprudence.

A Single Judge Bench of Justice A. Badharudeen observed that “Since the cheque belonged to the firm, the complainant should have arrayed the firm as an accused and the directors, if any, by disclosing their complicity in detail so as to warrant conviction and sentence provided under Section 138 of the N.I. Act”.

Advocate AVM. Salahudin appeared for the Petitioner, whereas Advocate Babu S. Nair appeared for the Respondent.

The brief facts of the case were that a cheque for Rs.5,00,000/- issued by the accused in favour of the complainant got dishonored for want of funds when the same was presented for collection. Soon after the dishonor, a legal notice was issued demanding the said amount. Since the amount was not paid, the complainant launched prosecution against the accused alleging the commission of an offence punishable under Section 138 of the Negotiable Instruments Act. The Trial Court sentenced the accused to undergo simple imprisonment for four months and to pay a fine of Rs.5,00,000/-. When the matter was taken in appeal, the Special Judge confirmed the conviction as well as the sentence imposed by the trial court.

While impeaching the veracity of the concurrent verdicts, a pertinent legal question was argued by the counsel for the accused/revision petitioner, that the cheque is issued in the name of “Thennala Enterprise”, a partnership firm and is signed by the Managing partner, the firm must be arrayed as a party to succeed a prosecution under Section 138 of the N.I. Act, and otherwise the entire prosecution would be vitiated.

After considering the submission and perusing the copy of the cheque, the Bench found that the cheque was issued for and on behalf of “Thennala Enterprise” by the Managing Partner, whereas, one P.I. Moitheenkutty alone is arrayed as the accused and the firm is not arrayed as an accused.

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

Therefore, the Bench highlighted that “Thennala Enterprise” a partnership firm comes within the definition of a Company as defined under Section 141 of the N.I. Act, and shall be deemed to be guilty of the offence and shall be liable to be proceeded and punished accordingly.

Accordingly, while holding that the entire prosecution is vitiated, the High Court quashed the concurrent finding of conviction as well as the sentence imposed by the trial court as well as the Appellate Court.

Cause Title: P.I. Moideen Kutty v. Abdul Rasheed V and ANR.

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