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Supreme Court of India
Dhanasingh Prabhu vs Chandrasekar on 14 July, 2025
2025 INSC 831 REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO.________OF 2025
(Arising out of Special Leave Petition (Criminal) No.5706 of 2024)
DHANASINGH PRABHU …. APPELLANT
VERSUS
CHANDRASEKAR & ANOTHER …. RESPONDENTS
JUDGMENT
NAGARATHNA, J.
Leave granted.
Factual Background:
2. Appellant has preferred the present criminal appeal
being aggrieved by the final judgment and order of the
Madras High Court dated 26.02.2024, whereby the High
Court allowed the Criminal Original Petition No.1533/2024
preferred by the respondents-accused and thereby quashed
Complaint bearing STC No.1106/2022 filed by the appellant-
complainant under Section 138 of the Negotiable Instruments
Signature Not Verified
Digitally signed by
BORRA LM VALLI
Act, 1881 (hereinafter “the Act”, for the sake of brevity)
Date: 2025.07.14
17:18:48 IST
Reason:
against the respondents.
1
2.1 By virtue of a partnership deed, respondent Nos.1 and
2 are partners in the partnership firm ‘Mouriya Coirs’ and are
engaged in manufacturing and allied activities of coir
products in Periyamamarthupatti, Thenkumarapalayam Post,
Pollachi, Tamil Nadu.
2.2 From March 2019 to August 2019, the appellant,
through banking channels as well as by cash, advanced a
loan of Rs.21,00,000/- (Rupees Twenty-One Lakhs) to the
respondents for business purposes. In order to discharge the
debt, on 01.02.2021, respondent No.1-accused issued
Cheque No.802077 for Rs. 21,00,000/-(Rupees Twenty-one
Lakhs) in favour of the appellant-complainant from Account
No.4393002100113025 maintained at Punjab National Bank,
New Scheme Road, Pollachi, in the name of the partnership
firm. Notably, the cheque issued in the name of the firm was
signed only by respondent No.1. However, upon presentation
of the said cheque on 02.02.2021, it was returned as
dishonoured vide cheque return memo by noting that the
partnership firm’s account has been frozen.
2.3 As required under Section 138 of the Act, the
appellant-complainant issued a statutory notice to the
2
respondents on 01.03.2021 demanding discharge of the
legally enforceable debt within fifteen days. Subsequently on
23.04.2021, the appellant-complainant filed complaint
bearing STC No. 1106/2022 before the Court of the Judicial
Magistrate No.II, Pollachi (hereinafter “trial Court”)
contending that the respondents have committed offences
under Section 138 read with Section 142 of the Act.
2.4 Our attention has been drawn to the uncontested fact
that neither was the statutory notice issued to the
partnership firm nor was the firm arraigned as an accused in
the complaint. Instead, the statutory notice and the
complaint mentioned the names of both the respondents who
are the partners to the said firm.
2.5 During the pendency of the complaint, the respondents
preferred Criminal Original Petition being Crl. O.P. No
1533/2024 under Section 482 of the Code of Criminal
Procedure, 1973 (hereinafter “CrPC”) before the High Court to
quash the complaint in STC No. 1106 of 2022 pending on the
file of the trial Court. By the impugned order dated
26.02.2024, the High Court allowed the Criminal Original
Petition and proceeded to quash the complaint in STC No.
3
1106 of 2022 on the ground that while the cheque was issued
on behalf of the partnership firm, no statutory notice was
issued to the partnership firm and it was also not arraigned
as an accused in the complaint. Therefore, according to the
High Court, as the rigours of Section 141 of the Act were not
complied with, the complaint was not maintainable as against
both the respondents, who were merely partners in the firm.
Hence, the complaint was quashed.
2.6 Being aggrieved, the appellant/complainant has
preferred this appeal.
Submissions:
3. Learned counsel for the appellant made the following
submissions to differentiate a partnership firm from other
entities with limited liability, such as a company, to support
his contention that the partners of a partnership firm are
liable to be prosecuted individually sans the partnership firm
being arraigned as an accused or being issued notice under
Section 138 of the Act or as required under Section 141 of the
Act, in the following manner:
4
(i) Firstly, he submitted that 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 (‘Partnership Act’ for short), 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
5
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 (hereinafter “CPC”)
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.
6
3.1 On the above premise, learned counsel for the
appellant sought for setting aside of the impugned order and
restoration of the complaint on the file of the court of the
learned Magistrate.
4. On the other hand, learned senior counsel for the
respondents, Sri S. Nagamuthu submitted that 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. He submitted that 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.
7
4.1 Learned senior counsel, Sri Nagamuthu, then referred
to the expression ‘person’ in Section 141 of the Act and
submitted that the said expression 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.
4.2 In view of the above arguments, learned senior counsel
submitted that a firm is deemed to be a company and if a
firm commits an offence under Section 138 of the Act, that
firm should also be added as an accused and found guilty.
Further, 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.
4.3 Learned senior counsel contended that in the absence
of the firm being issued the statutory notice or arraigned as
an accused in the complaint, the same was not maintainable
8
at all. Therefore, the High Court rightly quashed the
complaint and there is no merit in this appeal.
Points for consideration:
5. On hearing the learned counsel for the appellant and the
learned senior counsel for the respondent, the points that
arise for our consideration revolve around the interpretation
of the expressions, company and director in the Explanation
to Section 141 of the Act in the context of the partners of a
partnership firm. In other words, the questions are:
(i) “Whether the High Court was right in
dismissing the complaint on the ground that the
name of the partnership firm was not mentioned
in the statutory notice issued by the appellant /
complainant to the respondents under Section
138 of the Act and was also not arraigned as an
accused in the complaint filed by the appellant
/ complainant?
(ii) What order?”
9
6. Before we proceed further, it is necessary to refer to the
judgments in the following cases cited by the learned senior
counsel, Sri S. Nagamuthu:
6.1 Aneeta Hada vs. Godfather Travels & Tours (P)
Ltd., (2012) 5 SCC 661 (“Aneeta Hada”) is a judgment of a
three Judge Bench of this Court wherein 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 is in the aforesaid context that
after referring to several judgments of this Court, 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
10
proof thereof. This is because a company is a separate juristicperson 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
6.2 In the said case, 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
11
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. In our view, the aforesaid decisions are not
applicable to the present case inasmuch as the said decisions
concerned the vicarious liability of the directors of a company
when the company itself was not prosecuted against or made
liable. We say so for the reason that the distinction between a
company and a partnership firm has to be borne in mind
while approaching these cases. Hence, the judgment of this
Court in Aneeta Hada is of no assistance to the respondent
herein.
6.3 In Dilip Hariramani vs. Bank of Baroda, 2022 SCC
OnLine SC 579 (“Dilip Hariramani”), 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
12
offence. The facts of the case are necessary to be discussed
inasmuch as in this case 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 and sentenced to imprisonment
for six months and asked to pay compensation under Section
357 (3) of the CrPC and in default to suffer additional
imprisonment for one month. The appeal preferred before the
District and Sessions Court was allowed in part by reducing
the sentence till the rising of the court and enhancing the
13
compensation amount to Rs. One Crore Twenty Lakhs with
the stipulation that both the accused would suffer additional
imprisonment of three months in case of failure to pay. The
accused challenged the judgment before the Chhattisgarh
High Court which dismissed the appeal and hence the appeal
was preferred before this Court. This Court noted the
following facts in the said case:
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.
6.4 After referring to Aneeta Hada, this 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
“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”.
(underlining by us)
In the above context, the appeal was allowed and the
conviction of the appellant therein was set aside.
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.
15
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.
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6.7 In fact, in an earlier judgement G. Ramesh vs. KanikeHarish 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 was17
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.
6.9 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
18
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
19
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
20
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.
Hence permission is given to arraign the partnership
firm as an accused having regard to the peculiar
characteristics of a partnership firm and a company on which
aspect we will discuss further.
21
Difference between a partnership firm and a company:
7. Predominantly a product of judge-made law, the law of
partnership was first codified in India by the Indian
Partnership Act, 1932. Prior to the coming in force of the
Partnership Act, Chapter XI of the Indian Contract Act, 1872
(hereinafter ‘ICA’) defined a partnership, outlined the rights
and obligations of partners and provided various provisions
governing the operation and existence of partnerships.
Section 239 of ICA defined a partnership as:
“Partnership is the relation which subsists
between persons who have agreed to combine
their property, labour or skill in some business
and to share the profits thereof.”
7.1 The Partnership Act was promulgated as it was
considered expedient to define and amend the law relating to
partnership. As it stands today, partnership law is codified in
the Partnership Act and the Limited Liability Partnership Act,
2008. It is trite that these legislations, like all codifications of
partnership law in common law, are based on the law of
agency.
7.2 Section 4 of the Partnership Act defines a partnership,
partner, firm and firm name as follows:
22
“4. Definition of “partnership”, “partner”,
“firm” and “firm name”.—
“Partnership” is the relation between persons
who have agreed to share the profits of a
business carried on by all or any of them
acting for all.
Persons who have entered into partnership
with one another are called individually
“partners” and collectively “a firm”, and the
name under which their business is carried on
is called the “firm name”.
(underlining by us)
7.3 The definition in Section 4 of the Partnership Act is a
departure from the erstwhile definition of partnership in
Section 239 of ICA. A significant departure, inter alia, is the
insertion of “acting for all” which brings in the concept of
agency. An amendment of substantial import carried out by
the Special Committee was with the intent to elucidate clearly
the fundamental principle that the partners when carrying on
the business of the firm are agents as well as principals.1
Pollock & Mulla also notes the salient distinction between the
meanings of ‘partnership’ and ‘firm’. Tracing from Section 4,
Pollock & Mulla clarifies that the word “partnership” is used
throughout the Partnership Act in the defined sense of a
relationship and where the partners are referred to
1 Chapter 2, Pollock & Mulla, The Indian Partnership Act, 8th Edn. Lexis Nexis
Butterworths.
23
collectively, the word “firm” is used. It is pertinent to recall
that Explanation to Section 141 of the Act provides that for
the purposes of that section, a company includes a firm or
other association of individuals. Nevertheless, the distinction
is crucial because it lends credence to the interpretation that
reference in Section 141 is as much to the partners of the
firm as it is to directors of a company.
7.4 According to Pollock and Mulla, 8th Edition, the
definition of partnership in Section 4 of the Partnership Act
contains three elements; (i) there must be an agreement
entered into by all the persons concerned; (ii) the agreement
must be to share the profits of a business; and (iii) the
business must be carried on by all or any of the persons
concerned, acting for all. All these elements must be present
before a group of associates can be held to be partners. These
three elements may appear to overlap, but they are
nevertheless distinct. The third element shows that the
persons of the group who conduct the business do so as
agents for all the persons in the group and are therefore liable
to account for all. This Court while elaborating the third
essential element has held that the position of a partner in
24
the firm is thus not of a master and a servant or employer
and employee which concept involves an element of
subordination, but that of equality. It may be that a partner
is being paid some remuneration for any special attention
which he devotes but that would not involve any change of
status or bring him within the definition of employee, vide
Regional Director, Employees’ State Insurance
Corporation vs. Ramanuja Match Industries, (1985) 1
SCC 218, Paras 4 and 9.
7.5 In Section 4 of the Partnership Act, it is clearly stated
that persons who have entered into partnership with one
another are individually called partners and collectively a firm
and the name under which their business is carried out is
called a firm name. Thus, while partnership is the relation
between persons who have agreed to share profits of the
business carried on by all or any of them acting for all, the
persons are collectively called a firm and the name of the firm
is the firm name which is a compendious or collective term of
partnership of the partners. The said Section also clearly
implies that a firm or partnership is not a legal entity,
separate and distinct from its partners.
25
7.6 As already stated above, the firm is a compendious
term not distinct of the individuals who compose the firm. In
other words, partnership is merely a convenient name to
carry out business by partners. Thus, a firm is not an entity
of persons in law but is merely an association of individuals
and firm name is only a collective name of those individuals
who constitute the firm. In other words, the firm name is
merely an expression, only a compendious mode of
designating the persons who have agreed to carry on
business in partnership.
Thus, a firm may not be a legal entity in the sense of a
corporation or a company incorporated under the Companies
Act, 1956 or 2013, but it is still an existing concern where
business is done by a number of persons in partnership.
7.7 Insofar as the statutory definition of a company is
concerned, the legislature has found it particularly
cumbersome to provide a descriptive and inclusive definition.
Perhaps this is why the Parliament in its wisdom defined
‘company’ in Section 2(2) of the Companies Act, 2013
(‘Companies Act’) not by enumerating the essential features of
a company but “as a company incorporated under this Act or
26
under any previous company law”.2 Keeping aside the
omnibus statutory definition, several jurists have attempted
to outline a definition of a company for doctrinal and
precedential analysis. Lindley, a Jurist and Judge defined a
company in the following terms:
“A company is an association of many persons
who contribute money or monies worth to a
common stock and employed in some trade or
business and who share the profit and loss
arising therefrom. The common stock so
contributed is denoted in money and is the
capital of the company. The persons who
contribute to it or to whom it pertains are
members. The proportion of capital to which
each member is entitled is his share. The
shares are always transferable although the
right to transfer is often more or less
restricted.”3Section 9 of the Companies Act, 2013 provides as
follows:
“9. Effect of registration
From the date of incorporation mentioned in
the certificate of incorporation, such
subscribers to the memorandum and all other
persons, as may, from time to time, become
members of the company, shall be a body
corporate by the name contained in the
memorandum, capable of exercising all the
functions of an incorporated company under2
Section 2(2), Companies Act, 2013
3 N. Lindley, Lindley on Partnership (12th ed, Sweet & Maxwell, 2007)27
this Act and having perpetual succession with
power to acquire, hold and dispose of property,
both movable and immovable, tangible and
intangible, to contract and to sue and be sued,
by the said name.”7.8 While modern legislations and instruments have
outlined and carved out more complex features, rights and
obligations of a ‘company’, the fundamentals of Lindley’s
definition continue to hold ground. The salient distinctions
between a company and a partnership, including the rights
and obligations flowing therefrom which are fundamental to
common law, as well as the relevant statutes promulgated by
the Parliament could be discussed at this stage.
Separate Legal Personality:
7.9 A partnership firm, unlike a company registered under
the Companies Act, does not possess a separate legal
personality and the firm’s name is only a compendious
reference for describing its partners. This fundamental
distinction between a firm and a company rests on the
premise that the company is separate from its shareholders.
In that context, the words of Lord Macnaghten in Salomon
vs. Salomon & Co. Ltd., [1897] AC 22 (HL), (“Salomon”)
are instructive:
28
“the company is at law a different person
altogether from the subscribers……; and
though it may be that after incorporation the
business is precisely the same as it was before
and the same persons are managers and the
same hands receive the proceeds, the
company is not in law, the agent of the
subscribers or trustee for them. Nor are the
subscribers as members liable, in any shape or
form, except to the extent and in the manner
provided by the Act.”7.10 This distinction does not, however, continue to hold
true for a partnership firm. In the seminal case of Bacha F.
Guzdar vs. CIT, (1954) 2 SCC 563, this Court had an
opportunity to briefly address this distinction between a
partnership firm and a company, wherein it was observed
thus:
“13. It was argued that the position of
shareholders in a company is analogous to that
of partners inter se. This analogy is wholly
inaccurate. Partnership is merely an
association of persons for carrying on the
business of partnership and in law the firm
name is a compendious method of describing
the partners. Such is, however, not the case of
a company which stands as a separate juristic
entity distinct from the shareholders.”7.11 The partnership name being only a compendious
method of describing the partners, it stands to reason that a
reference to the partners in their capacity as partners of the
29
firm will be sufficient to impute liability on the partnersthemselves, whereas directors of a company are made liable
vicariously through the company, upon whom falls the
primary liability. Thus, the partners and the partnership firm
are one and the same. Unlike a company, a partnership firm
has no independent corporate existence and has no distinct
legal persona independent of its partners. Similarly, the
partners of a firm are co-owners of the property of the firm
unlike shareholders in a company who are not co-owners of
the property of the company. This principle was also
explained by the Calcutta High Court in Re: The Kondoli
Tea Co. Ltd., (1886) ILR 13 Cal 43 where the transferors of
a tea estate claimed that they were eligible to claim exemption
from payment of ad valorem duty because the transferee was
a company in which they themselves were shareholders.
Negativing this contention, it was held that the company was
a separate person and the transfer of the tea estate was a
conveyance and in substance, a transfer to another person.
7.12 Although the course of jurisprudential
pronouncements led by the dictum of Privy Council in
Bhagwanji Morarji Goculdas vs. Alembic Chemical Works
30
Company Ltd., AIR 1948 PC 100 (“Bhagwanji Morarji
Goculdas”), intermittently understood that Indian law –
particularly, the Partnership Act – which has proceeded
beyond English law and attributed some degree of personality
to a partnership in accordance with the law in Scotland, a
clarification was provided by this Court through its decision
in Dulichand Laksminarayan vs. CIT, AIR 1956 SC 354
(“Dulichand”), which settled the position. It was held therein
that any treatment as a separate unit for purposes of
accommodating mercantile practices and commercial
convenience did not obliterate the fundamental principle in
law that a partnership firm is not a legal person. When this
Court acknowledged in Dulichand that Indian law had
relaxed its rigid notions to extend limited personality to a
firm, this Court referred to the gradual relaxation of
procedure to facilitate commercial convenience. For instance,
it was explained that merchants show a firm as a debtor to
each partner for what is brought into the common stock and
each partner is shown as a debtor to the firm for all that he
takes out of that stock. As traditionally, under the common
law, a firm, not being a legal entity, could not sue or be sued
31
in the firm name or sue or be sued by its own partner, for one
cannot sue oneself, the rigid law of procedure was relaxed to
give way to considerations of commercial convenience and a
firm was permitted to sue or be sued in the firm name much
like a corporate body. This Court further noted how Order
XXX Rule 9 of the CPC allowed a firm to sue or be sued by
another firm having some common partners or even to sue or
be sued by one or more of its own partners, as if the firm is
an entity distinct from its partners.
7.13 Similarly, it was explained that in taking partnership
accounts and in administering partnership assets, the law
has to some extent, adopted the mercantile view and the
liabilities of the firm are regarded as the liabilities of the
partners only in case they cannot be met and discharged by
the firm out of its assets.
7.14 Most pertinent is that despite noting these relaxations
in the rigid rules of procedure, this Court observed in
Dulichand that ‘a firm name is merely an expression, only a
compendious mode of designating the persons who have
agreed to carry on business in partnership’. Any relaxations,
either aforementioned or not, borne out of commercial
32
convenience or otherwise, do not deviate from the settled
position that the name of a partnership firm is a convenient
manner of referring to its partners.
7.15 We need not further dilate in extenso on this subject
than to simply revisit the following erudite words of Krishna
Iyer, J. in CIT vs. R.M. Chidambaram Pillai, (1977) 1 SCC
431 which also engage and follow this Court’s view in
Dulichand:
“5. First principles plus the bare text of the
statute furnish the best guidelight to
understanding the message and- meaning of
the provisions of law. Thereafter, the
sophisticated exercises in precedents and
booklore. Here the first thing that we must
grasp is that a firm is not a legal person
even though it has some attributes of
personality. Partnership is a certain
relation between persons, the product of
agreement to share the profits of a
business. “Firm” is a collective noun, a
compendious expression to designate an
entity, not a person. In income tax law a firm
is a unit of assessment, by special provisions,
but is not a full person; which leads to the next
step that since a contract of employment
requires two distinct persons viz. the employer
and the employee, there cannot be a contract
of service, in strict law, between a firm and one
of its partners. So that any agreement for
remuneration of a partner for taking part in the
conduct of the business must be regarded as
portion of the profits being made over as a
reward for the human capital brought in.33
Section 13 of the Partnership Act brings into
focus this basis of partnership business.
xxx
16. The Indian law of partnership is
substantially the same and the reference in
counsel’s submissions to the Scottish view of a
firm being a legal entity is neither here nor
there. Primarily our study must zero on the
Indian Partnership Act and not borrow courage
from foreign systems. In Bhagwanji Morarji
Gokuldas [AIR 1948 PC 100 : (1948) 18 Comp
Cas 205, 209] the Privy Council ruled that the
Indian Partnership Act went beyond the
English Partnership Act, 1890, the law in India
attributing personality to a partnership being
more in accordance with the law of Scotland.
Even so, Sir John Beaumont, in that case,
pointed out that the Indian Act did not
make a firm a corporate body. Moreover, we
are not persuaded by that ruling of the Privy
Council, particularly since a pronouncement of
this Court in Dulichand [Dulichand
Laksminarayan v. CIT, AIR 1956 SC 354 : 1956
SCR 154 : (1956) 2 ITR 535] strikes a contrary
note. We quote:
“In some systems of law this separate
personality of a firm apart from its
members has received full and formal
recognition as, for instance, in
Scotland. That is, however, not the
English common law conception of a
firm. English lawyers do not recognise
a firm as an entity distinct from the
members composing it. Our
partnership law is based on English
law and we have also adopted the
notions of English lawyers as regards a
partnership firm.”The life of the Indian law of partnership
depends on its own terms although habitually34
courts, as a hangover of the past, have been
referring to the English law on the point. The
matter is concluded by the further
observations of this Court:
“It is clear from the foregoing
discussion that the law, English as
well as Indian, has, for some specific
purposes, some of which are referred
to above, relaxed its rigid notions and
extended a limited personality to a
firm. Nevertheless, the general
concept of a partnership, firmly
established in both systems of law,
still is that a firm is not an entity
or ‘person’ in law but is merely an
association of individuals and a
firm name is only a collective name
of those individuals who constitute
the firm. In other words, a firm
name is merely an expression, only
a compendious mode of designating
the persons who have agreed to
carry on business in partnership.
According to the principles of English
jurisprudence, which we have adopted,
for the purposes of determining legal
rights ‘there is no such thing as a firm
known to the law as was said by
James, L.J., in Ex parte Corbett : In re
Shand [(1880) 14 Ch D 122, 126 : 42
LT 164 : 28 WR 569] . In these
circumstances to import the definition
of the word ‘person’ occurring in
Section 3(42) of the General Clauses
Act, 1897, into Section 4 of the Indian
Partnership Act will, according to
lawyers, English or Indian, be totally
repugnant to the subject of
partnership law as they know and
understand it to be.”35
In Narayanappa [Addanki Narayanappa v.
Bhaskara Krishtappa, AIR 1966 SC 1300,
1303 : (1966) 3 SCR 400] the view taken by this
Court accords with the position above stated.”(emphasis supplied)
7.16 Finally, on this question, Krishna Iyer, J. speaking for
this Court noted that under Indian law, a partnership is only
a collective of separate persons and is not a legal person in
itself.
Perpetual Succession:
7.17 As a logical corollary of distinct and separate juristic
identity, an incorporated company also has perpetual
succession i.e., perpetual existence agnostic of transfer of
shares. A company does not ordinarily extinguish because of
change in shareholding. On the other hand, a partnership
firm’s fundamental identity is contingent on the partners and
undergoes a change with a change in partners, subject to
contract. Section 42(c) of the Partnership Act provides that
subject to contract between the partners, a firm is dissolved
by the death of a partner. Per contra, the position of a
company could not be made clearer than by the following
36
illustration in Professor Gower’s Principles of ModernCompany Law (3rd Edn. 1969), at p.76:
“During the war all the members of one private
company, while in general meeting, were killed
by a bomb. But the company survived; not
even a hydrogen bomb could have destroyed
it.”7.18 Although one might argue that from the perspective of
a merchant or even income tax law, a firm appears to
continue irrespective of the entrance and exit of partners,
Lindley explained the orthodox legal view, which continues to
hold ground, on partnership, in the following words:
“The law, ignoring the firm, looks to the
partners composing it; any change amongst
them destroys the identity of the firm; what is
called the property of the firm is their property,
and what are called the debts and liabilities of
the firm are their debts and their liabilities. In
point of law, a partner may be the debtor or the
creditor of his co-partners, but he cannot be
either debtor or creditor of a firm of which he is
himself a member.”
(Underlining by us)
Liability of Partners:
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
37
26 of the Partnership Act are relevant in this regard, whichare 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
38
limited company or a limited liability partnership, whereinthe 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.
39
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.
40
Firm Name:
8. It is therefore appropriate to remind ourselves 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. Even the registration of a firm does not mean that it
becomes a distinct legal entity like a company. Hence, the
partners of a firm are co-owners of the property of the firm,
unlike shareholders in a company who are not co-owners of
the property of the company.
8.1 According to Lindley and Banks on Partnership, 21st
Edition, it is important to identify the precise significance of a
firm name since it represents an attribute which tends to
encourage the commercial rather than the legal view of a
firm. According to Lindley, “……the name under which a firm
carries on business is in point of law a conventional name
applicable. Only to the persons who on each particular
occasion when the name is used, are members of the firm.”
8.2 The firm name is thus a convenient method of
describing a group of persons associated together in business
41
at a certain point of time: no more or no less. If a number of
people carry on business under such name or style, anything
which they may do in that name or style will be just as
effective as if their individual names had been used. An
obvious example of this is the use of firm name on bills of
exchange and promissory notes.
9. The aforesaid principles have to be applied to Sections
138 and 141 of the Act. For immediate reference, the said
sections are extracted 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—42
(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
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 he43
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.”
9.1 Section 138 of the Act creates an offence for dishonour
of a cheque for, inter alia, insufficiency of funds in the
account by a deeming fiction. The complainant who is a
victim of the dishonour of cheque issued by an accused has
44
the right to file a private complaint in terms of Section 200 of
the CrPC, (equivalent to Section 223 of the Bharatiya Nagarik
Suraksha Sanhita, 2023 (for short, “BNSS”)). When the said
offence is proved against an individual/natural person, he is
punished with imprisonment for a term which may be
extended to two years or with fine which may extend to twice
the amount of the cheque. But when such an offence is
committed by a company, which is an artificial juristic entity,
Section 141 of the Act applies. The said Section states that if
the person committing an offence under Section 138 of the
Act 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. Since an artificial juristic entity such
as a company cannot be punished with imprisonment, by a
deeming fiction certain persons associated with such an
artificial juristic entity are deemed to be guilty of the offence
and made liable to be proceeded against and punished
accordingly. This is an instance of vicarious liability on every
45
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. This is for the
reason that a company is a separate entity vis-à-vis its
shareholders or those who are in charge of the conduct of its
business since a company is an artificial juristic entity. Thus,
the liability would be on the company as well as on the
category of persons mentioned above. Such a person must be
both in charge of, as well as responsible to, the company for
the conduct of the business of the company. However, the
aforesaid category of person who is deemed to be guilty of the
offence along with the company, can escape punishment (i) if
he can prove that the offence was committed without his
knowledge; or (ii) that he had exercised all due diligence to
prevent the commission of such an offence. Hence, by way of
a proviso to sub-section (1) to Section 141 of the Act, two
defences are provided for the category of persons named in
sub-section (1) of Section 141.
9.2 The second proviso to sub-section (1) of Section 141 is
an exception for a person who is a director of the company
who shall not be liable for prosecution under Chapter XVII of
46
the Act. The second proviso is not relevant for the purpose of
this case as the said proviso refers to ex-officio directors
representing the Central Government or state governments or
a financial corporation owned or controlled by the Central
Government or the state government, as the case may be.
9.3 Sub-section (2) of Section 141 begins with a non-
obstante clause. It extends the scope of categories of persons
associated with the company who could also be deemed to be
guilty of an offence under Section 138 of the Act and shall be
liable to be proceeded against and punished accordingly.
Sub-section (2) of Section 141 states that where the offence
has been committed by a company and it is proved that the
offence has been committed with the (i) consent; or (ii)
connivance of; or (iii) is attributable to, any neglect on the
part of any director, manager, secretary or other officer of the
company, such aforesaid categories of persons shall also be
deemed to be guilty, proceeded against and punished
accordingly. While sub-section (1) of Section 141 restricts the
category of persons who would be deemed to be liable when
the offence is committed by a company, sub-section (2) of
Section 141 extends the scope of liability to further categories
47
of persons namely, director, manager, secretary or other
officer of the company to be made liable provided there is
proof that such category of persons associated with the
company had committed the offence with the consent or
connivance of, or due to any negligence on their part. The
expression “shall also be deemed to be guilty” in sub-section
(2) of Section 141 of the Act would imply that the object and
purpose of the said provision is to encompass the categories
of persons mentioned in that sub-section owing to a criminal
intent or negligence attributable on their part.
9.4 Thus, while under sub-section (1) of Section 141 of the
Act, the criminal liability on the category of persons named in
the said sub-section is owing to the position that person
holds in the company, when the company is said to have
committed the offence under Section 138 and therefore the
deeming fiction under sub-section (2) of Section 141 of the
Act, on the other hand, there has to be a proof with regard to
consent or connivance for the committing of the offence or a
criminal negligence on the part of the director, manager,
secretary or other officer of the company who shall also be
deemed to be guilty of the offence under Section 138 of the
48
Act. Thus, under sub-section (2) of Section 141 of the Act,
when the company is guilty of the offence under Section 138
of the Act, a director, manager, secretary or other officer of
the company shall also be deemed to be guilty of the offence
and liable to be proceeded against and punished accordingly,
provided there is proof of mens rea on the part of such
category of persons. Hence, a director, manager, secretary or
other officer of the company cannot be proceeded against per
se by virtue of the position they hold in the company but can
be proceeded against only when there is proof that the offence
under Section 138 was committed by the company with their
consent or connivance or due to negligence on their part. The
standard of proof is higher under sub-section (2) of Section
141 vis-à-vis the category of persons mentioned therein with
regard to their specific role in the commission of the offence
under Section 138. This implies that the primary liability of
the company is transferred to the above categories of persons
who are deemed to be guilty vicariously having regard to the
deemed penal nature of the offence under Section 138 of the
Act.
49
9.5 The Explanation to Section 141 has two clauses.
Clause (a) defines a company to mean any body corporate
and includes a firm or other association of individuals. The
expression “company” encompasses, inter alia, a body
corporate which refers to a company incorporated under the
provisions of the Companies Act or a statutory body. The
expression “company” is inclusive inasmuch as it includes a
firm, meaning thereby a partnership firm, as per the
provisions of the Partnership Act, as well as a limited liability
partnership or other association of individuals. Clause (b) of
the Explanation defines a director as mentioned in sub-
section (2) of Section 141 of the Act in relation to a firm to
mean a partner in the firm. Thus by a legislative device an
inclusive definition is added by way of an Explanation to
Section 141 of the Act inasmuch as in jurisprudence and in
law, a company is a distinct body corporate and separate
juristic entity as compared to a partnership firm.
9.6 On a conjoint reading of the various clauses of Section
141, what emerges is that the expression “company” has been
used in an expansive way to include not just a company
incorporated under the provisions of the Companies Act
50
stricto sensu but also any body corporate such as a statutory
company as well as other artificial juristic entity such as a
partnership firm or other association of individuals. Hence,
the expression “director” in sub-section (2) of Section 141 is
not restricted to a director of an incorporated company or a
statutory body, but also includes a partner of a firm. The
expression “director” in sub-section (2) of Section 141 of the
Act in relation to a firm means a partner, which is also a
legislative device adopted by the Parliament knowing fully
well and being conscious of the fact that a partnership firm,
jurisprudentially speaking, does not stand on par with a
director of a body corporate. Since the Parliament has used
the expression “company” encompassing all types of juristic
persons, it was necessary to give an expanded definition to
the expression “director” in relation to a firm to mean a
partner in the firm. Therefore, the inclusion of a firm within
the meaning of the expression “company” is by a legal fiction
and by way of a legislative device only for the purpose of
creating a liability on the partners of the firm, which in any
case, they are liable under the law of partnership in India.
But the definition of the word company including a
51
partnership firm has been incorporated in the Explanation for
the sake of convenience, as otherwise a similar provision
would have to be inserted for the very same purposes. Instead
of replicating the same definition for different kinds of juristic
entities, the Parliament has thought it convenient to add an
Explanation to define a company for the purpose of Section
141 of the Act in the context of an offence committed by, inter
alia, a company, as understood within the meaning of the
Companies Act, and also include a firm or other association
of individuals within the definition of company. Similarly,
under clause (b) of the explanation, the expression “director”,
in relation to a firm, means a partner in the firm.
9.7 This also demonstrates the fact that while a director is
a separate persona in relation to a company, in the case of a
partnership firm, the partner is not really a distinct legal
persona. This is because a partnership firm is not really a
legal entity separate and distinct as a company is from its
directors but can have a legal persona only when the
partnership firm is considered along with its partners. Thus,
the partnership firm has no separate recognition either
jurisprudentially or in law apart from its partners. Therefore,
52
while a director of a company can be vicariously liable for an
offence committed by a company, insofar as a partnership
firm is concerned, 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. Therefore the
partners of the firm are liable for the dishonour of a cheque,
even though the cheque may have been issued in the name of
the firm and the offence is committed by the firm. Therefore,
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. This
is unlike a company which is liable by itself and since it is an
artificial juristic entity, the persons in charge of the affairs of
the company or who conduct its business only become
vicariously liable for the offence committed by the company.
9.8 However, jurisprudentially speaking, the partners of a
partnership firm constitute the firm and a firm is a
compendious term for the partners of a firm. This is opposed
to the position of a director in a company which is a body
corporate stricto sensu and such a company is a separate
juristic entity vis-à-vis the directors. On the other hand, a
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partnership firm has no legal recognition in the absence of its
partners. If a partnership firm is liable for the offence under
Section 138 of the Act, it would imply that the liability would
automatically extend to the partners of the partnership firm
jointly and severally. This underlying distinction between a
partnership firm and a company which is a body corporate
has to be borne in mind while dealing with an offence
committed by a company or a partnership firm, as the case
may be, within the meaning of Section 138 read with Section
141 of the Act. To reiterate, in the case of a partnership firm,
there is no concept of vicarious liability of the partners as
such. The liability is joint and several because a partnership
firm is the business of partners and one cannot proceed
against only the firm without the partners being made liable.
9.9 Therefore, even in the absence of partnership firm
being named as an accused, if the partners of the partnership
firm are proceeded against, they being jointly and severally
liable along with the partnership firm as well as inter-se the
partners of the firm, the complaint is still maintainable. The
accused in such a case would in substance be the partners of
the partnership firm along with the firm itself. Since the
54
liability is joint and several, even in the absence of a
partnership firm being proceeded against by the complainant
by issuance of legal notice as mandated under Section 138 of
the Act or being made an accused specifically in a complaint
filed under Section 200 of CrPC, (equivalent to Section 223 of
the BNSS), such a complaint is maintainable.
9.10 Thus, when it is a case of an offence committed by a
company which is a body corporate stricto sensu, the
vicarious liability on the categories of persons mentioned in
sub-section (1) and sub-section (2) of Section 141 of the Act
accordingly would be proceeded against and liable for the
offence under Section 138 of the Act. In the case of a
partnership firm on the other hand, when the offence has
been proved against a partnership firm, the firm per se would
not be liable, but liability would inevitably extend to the
partners of the firm inasmuch as they would be personally,
jointly and severally liable with the firm even when the
offence is committed in the name of the partnership firm.
9.11 To reiterate, when the partnership firm is only a
compendious name for the partners of the firm, any offence
committed under Section 138 read with Section 141 of the
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Act would make the partners of the firm jointly and severally
liable with the firm. If, on the other hand, the Parliament
intended that the partners of the firm be construed as
separate entities for the purpose of penalty, then it would
have provided so by expressly stating that the firm, as well as
the partners, would be liable separately for the offence under
Section 138 of the Act. Such an intention does not emanate
from Section 141 of the Act as the offence proved against the
firm would amount to the partners of the firm also being
liable jointly and severally with the firm. Therefore, there is
no separate liability on each of the partners unless sub-
section (2) of Section 141 applies, when negligence or lack of
bona fides on the part of any individual partner of the firm
has been proved.
10. In view of the aforesaid discussion, we hold 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. In view of
the aforesaid discussion, the notice issued to the partners of
the firm in the instant case shall be construed to be a notice
56
issued to the partnership firm also viz., ‘Mouriya Coirs’.
Permission is granted to arraign the partnership firm as an
accused in the complaint.
11. Consequently, the impugned order of the High Court is
set aside. 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.
12. The appeal is allowed in the aforesaid terms.
….……………………………………..J.
(B.V. NAGARATHNA)
….……………………………………..J.
(SATISH CHANDRA SHARMA)
NEW DELHI;
JULY 14, 2025.
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