Arraigning of Partnership firm imperative to prosecute partner U/s.141 of the NI Act #indianlaws

There can be no dispute that as the liability is penal in nature, a strict construction of the provision would be necessitous. Therefore for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the dragnet on the touchstone of vicarious liability as the same has been stipulated in the provision itself. It was accordingly held that for maintaining prosecution against a partner under section 141 of the NI Act, arraigning of partnership firm as an accused is imperative.

Question of law which arose in the present set of petitions was whether a prosecution launched under section 138 of the Negotiable Instruments Act (“NI Act”) against a partner alone without joining the partnership firm can be maintainable.

The contention raised in the instant case was that since the partnership firm was not made an accused and one of the partner alone was sued, the prosecution itself was not tenable and on this count the process issued against the petitioner was required to be quashed and set aside.

On the contrary it was submitted that a partnership firm and a company registered under the Companies Act stand on two different footings. A partnership firm is not a juristic person. It is not a separate and distinct legal entity. As against it, a company is a separate juristic person. Hence, the law laid down by Supreme Court in the Aneeta Hada case, which was in the context of a company, which is a separate juristic person, cannot be made applicable in the case of a partnership firm which is not a separate juristic person.

It was observed by the Court that explanation (a) to section 141 of the NI Act abundantly makes it clear that the word “company” used in the said section is not confined in its application only to the company registered under the Companies Act, but also to the body corporate and specifically includes a firm or other association of individuals. Explanation (b) further clarifies the position that the director in relation to a firm means a partner in the firm.  As per the explanation, section 141 of the NI Act clearly applies not only to the company, but also to the partnership firm when the offences are committed by a company or a partnership firm as may be the case.

In Aneeta Hada’s case the question before the Apex Court was whether an authorised signatory of a company would be liable for prosecution under section 138 of the NI Act without the company being arraigned as an accused. Supreme Court in the said matter observed Section 141 of the Act is concerned with the offences by the company. It makes the other persons vicariously liable for commission of an offence on the part of the company. The vicarious liability gets attracted when the condition precedent laid down in Section 141 of the Act stands satisfied. There can be no dispute that as the liability is penal in nature, a strict construction of the provision would be necessitous and, in a way, the warrant. It was held therein that for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the dragnet on the touchstone of vicarious liability as the same has been stipulated in the provision itself.

In view of explanation to section 141 of the NI Act, as also held in Aneeta Hada case, the legal position held to be as automatically applicable in case of prosecution against a partnership firm also.

It was accordingly held that for maintaining prosecution against a partner under section 141 of the NI Act, arraigning of partnership firm as an accused is imperative.

On the issue that whether a distinction has to be made between the partnership firm, which is not a separate juristic and legal entity, and the company which is a juristic entity. It was observed that the conclusions drawn by the Apex Court in the case of Aneeta Hada are not based merely on the fact that the company is a separate legal entity and juristic person, but these conclusions are drawn on the basis of the fact that section 141 of the NI Act deals with vicarious liability. Supreme Court had arrived at an irresistible conclusion that for maintaining the prosecution under section 141 of the NI Act, arraigning of the company as an accused is imperative, mainly and mostly on the basis of the vicarious liability of the directors of the company and not necessarily because the company is a juristic person and it has its own respectibility. That was an additional circumstance considered by the Apex Court while holding that arraigning of a company as an accused is imperative, but the main basis for arriving at its conclusion was the vicarious liability which the directors or partners of the firm can have towards the company and hence without joining the company on the touchstone of vicarious liability they cannot be prosecuted.

Therefore, the ratio laid down in the case of Aneeta Hada can be made equally applicable in the case of partnership firm also. The partners are liable and sued in their vicarious liability. Whether the partnership firm is a juristic person or not is a different aspect. What is important is that a partner of the firm is arraigned as an accused in the dragnet on the touchstone of vicarious liability, as is done in the case of directors of the company.

[Philip J. vs. Ashapura Minechem Ltd. & Anr.]

(Bombay HC, 29.01.2016)

Criminal Writ Petition Nos. 2909 – 10, 2914 – 15 of 2013