IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA.
Cr. Appeal No. 140 of 2018 Judgment Reserved on: 04.09.2018 .
Date of decision : 11.09.2018.
M/s Uttam Traders Ranghri …Appellant
Tule Ram alias Tula Ram …Respondent.
The Hon’ble Mr. Justice Tarlok Singh Chauhan, Judge.
For the Appellant : Mr. Maan Singh, Advocate.
For the Respondent : Mr. Mukul Sood, Advocate.
Tarlok Singh Chauhan, Judge
Two questions arise for consideration in this appeal:
(i) whether the application filed by the appellant to place on record the partnership deed can be allowed especially after the learned trial Magistrate has acquitted the respondent for the offence punishable under Section 138 of the Act, only on account of the managing partner of the appellant having failed to establish that he was one of the partners of the complainant-firm and duly authorised by it to file the complaint.
(ii) Whether a partner of an unregistered partnership firm can maintain a complaint under Section 138 of the Negotiable Instruments Act.
2. However, before answering these questions, certain facts need to be noticed.
3. The appellant-complainant filed a criminal complaint under Section 138 .
of the Negotiable Instruments Act (for short NI Act) against the respondent on the allegation that it was a partnership firm having its office at Village Ranghri, Manali and Sh. Aakash Ahuja was a partner of the said firm, who had been duly authorised to present the complaint. It is submitted that the accused/ respondent had purchased construction material i.e. cement, steel etc. from 01.06.2015 to 29.09.2015 from the appellant-firm and having an outstanding liability of Rs.5,00,000/- for which he issued and handed over cheque bearing No.378401 dated 24.9.2015 to the appellant.
However, on presentation, the cheque was returned being dishonoured vide memo dated 24.9.2015 with remarks ‘funds insufficient’. Even after issuance and receipt of legal notice dated 8.10.2015, no payment was made by the respondent. Hence, the complaint.
4. On the basis of the preliminary evidence adduced by the appellant, the respondent was summoned by the learned trial Magistrate vide order dated 23.11.2015 and on finding a prima-facie case, notice of accusation was put to the respondent, to which he pleaded not guilty and claimed trial.
5. In support of his case, the complainant-firm examined Aakash Ahuja as a witness and closed its evidence. Thereafter, the statement of the respondent under Section 313 Cr.P.C. was recorded wherein he denied the case of the complainant-firm.
However, in defence, respondent did not lead any evidence.
6. As observed above, the learned trial Magistrate dismissed the complaint solely on the ground that Sh. Aakash Ahuja one of the partners of the complainant-firm had failed to prove that he was one of the partners of the complainant-firm and duly authorised by it to file the complaint and acquitted the respondent.
7. Aggrieved by the acquittal, the complainant has filed this appeal .
alongwith which an application under Section 391 Cr.P.C. being Cr.MP.No. 464 of 2018 has been filed to place on record the copy of partnership deed. It is vehemently argued by Mr. Maan Singh, learned Counsel for the appellant-complainant that the learned trial Magistrate erred in dismissing the complaint and acquitted the respondent on purely hypertechnical grounds and, therefore, the appeal may be accepted and the judgment of acquittal be set-aside.
8. On the other hand, Mr. Mukul Sood, learned counsel for the respondent would argue that no fault can be found with the order of acquittal passed by learned Court below and even in case the application for leading additional evidence is to be allowed, even then the same is of no avail as admittedly the partnership deed in question is an unregistered one.
I have heard learned counsel for the parties and have gone through the records of the case carefully.
9. As already observed above, the following two questions arise for consideration:
(i) whether the application (Cr.M.P. No.464 of 2018 filed by the appellant to place on record the partnership deed can be allowed especially after the learned trial Magistrate has acquitted the respondent for the offence punishable under Section 138 of the Act, only on account of the managing partner of the appellant having failed to establish that he was one of the partners of the complainant-firm and duly authorised by it to file the complaint.
(ii) Whether a partner of an unregistered partnership firm can maintain a complaint under Section 138 of the Negotiable Instruments Act..
10. I would firstly like to answer the question No.1, as admittedly the second question would arise for determination only if the first question is answered in favour of the appellant.
11. Section 391 of the Code of Criminal Procedure reads thus:
“391. Appellate Court may take further evidence or direct it to be taken.-
(1) In dealing with any appeal under this Chapter, the Appellate Court, if it thinks additional evidence to be necessary, shall record its reasons and may either take such evidence itself, or direct it to be taken by a Magistrate, or when the Appellate Court is a High Court, by a Court of Session or a Magistrate.
(2) When the additional evidence is taken by the Court of Session or the Magistrate, it or he shall certify such evidence to the Appellate Court, and such Court shall thereupon proceed to dispose of the appeal.
(3) The accused or his pleader shall have the right to be present when the additional evidence is taken.
(4)The taking of evidence under this section shall be subject to the provisions of Chapter XXIII, as if it were an inquiry.”
12. In M.M.T.C.Ltd. And another vs. Medchl Chemicals and Pharma (P)Ltd. And another (2002) 1 SCC 234, the Hon’ble Supreme Court held that the only eligibility criteria prescribed by Section 142 for maintaining a complaint under Section 138 is that the complaint must be by the payee or the holder in due course and once this criteria is satisfied as the complaint is in the name and on behalf of the appellant Company. Therefore, even presuming that initially there was no authority, still the company can, at any stage, rectify that defect at a subsequent stage, and the company can send a person who is competent to represent the Company. It is apt to reproduce the relevant observations as contained in paras 11 and 12 of the judgment, which reads thus:
“11. This Court has, as far back as, in the case of Vishwa Mitter v. O. P. Poddar reported in (1983) 4 SCC 701, held that it is clear that anyone can set the criminal law in motion by filing a complaint of facts constituting an offence before a Magistrate entitled to take cognizance. It has been held that no court .
can decline to take cognizance on the sole ground that the complainant was not competent to file the complaint. It has been held that if any special statute prescribes offences and makes any special provision for taking cognizance of such offences under the statute, then the complainant requesting the Magistrate to take cognizance of the offence must satisfy the eligibility criterion prescribed by the statute. In the present case, the only eligibility criteria prescribed by Section 142 is that the complaint must be by the payee or the holder in due course. This criteria is satisfied as the complaint is in the name and on behalf of the appellant Company.
12. In the case of Associated Cement Co. Ltd. v. Keshvanand (1998) 1 SCC 687, it has been held by this Court that the complainant has to be a corporeal person who is capable of making a physical appearance in the court.
It has been held that if a complaint is made in the name of a incorporeal person (like a company or corporation) it is necessary that a natural person represents such juristic person in the court. It is held that the court looks upon the natural person to be the complainant for all practical purposes. It is held that when the complainant is a body corporate it is the de jure complainant, and it must necessarily associate a human being as de facto complaint to represent the former in court proceedings. It has further been held that no Magistrate shall insist that the particular person, whose statement was taken on oath at the first instance, alone can continue to represent the company till the end of the proceedings. It has been held that there may be occasions when different persons can represent the company. It has been held that it is open to the de jure complainant company to seek permission of the court for sending any other person to represent the company in the court. Thus, even presuming, that initially there was no authority, still the Company can, at any stage, rectify that defect. At a subsequent stage the Company can send a person who is competent to represent the company. The complaints could thus not have been quashed on this ground.”
13. Likewise in Samrat Shipping Co. Pvt. Ltd. vs. Dolly George (2002) 9 SCC 455, the Hon’ble Supreme Court termed the dismissal of the complaint at the threshold by the Magistrate on the ground that the individual through whom the complaint was filed had not produced the certified copy of the resolution of the Board of Directors of the Company authorising him to represent the Company before the .
Magistrate has also not justified and termed this exercise to be “too hasty an action”. It is apt to reproduce the observation as contained in para 3 of the judgment, which reads thus:
“3. Having heard both sides we find it difficult to support the orders challenged before us. A Company can file a complaint only through human agency. The person who presented the complaint on behalf of the Company claimed that he is the authorised representative of the company. Prima facie, the trial court should have accepted it at the time when a complaint was presented. If it is a matter of evidence when the accused disputed the authority of the said individual to present the complaint, opportunity should have been given to the complainant to prove the same, but that opportunity need be given only when the trial commences. The dismissal of the complaint at the threshold on the premise that the individual has not produced certified copy of the resolution appears to be too hasty an action. We, therefore, set aside the impugned orders and direct the trial court to proceed with the trial and dispose it off in accordance with law. Parties are directed to appear before the trial court on 31.01.2000.”
14. Similar matter of dishonour of cheque came before three Judge Bench of the Hon’ble Supreme Court in M/s Haryana State Co.Op., Supply and Marketing Federation Ltd. vs. M/s Jayam Textiles and another AIR 2014 SC 1926 wherein it was held that the dismissal of the complaint for mere failure to produce authorisation would not be proper and an opportunity ought to be granted to produce and prove the authorisation. It is apt to reproduce the apposite observations as contained in paras 6 and 7 of the judgment, which read thus:
” 6. Having heard learned counsel for the parties and after perusing the material on record, we find that admittedly authorisation by the Board of Directors of the appellant-Federation was not placed before the Courts below. But, we may notice that a specific averment was made by the appellant- Federation before the learned Judicial Magistrate that the said General Power of Attorney has been filed in connected case being CC No. 1409/1995, which has neither been denied nor disputed by the respondents. In any case, in our opinion, if the Courts below were not satisfied, an opportunity ought to have been granted to the appellant-Federation to place the document containing authorisation on record and prove the same in accordance with law. This is so because procedural defects and irregularities, which are curable, should not be allowed to defeat substantive rights or to cause injustice. Procedure, a hand- maiden to justice, should never be made a tool to deny justice or perpetuate injustice, by any oppressive or punitive use. See Uday Shankar Triyar Vs. Ram Kalewar Prasad Singh, (2006) 1 SCC 75. : (AIR 2006 SC 269 : 2005 AIR SCW 5851).
7. In view of the fact that in spite of arbitration award against the respondents, there was non-payment of amount by the respondents to the appellant-Federation, and also in the light of authorisation contained in Annexure-P/7, we are of the opinion that, in the facts and circumstances of the case, an opportunity should be given to the appellant-Federation to produce and prove the authorisation before the Trial Court, more so, when money involved is public money. We, therefore, set aside the judgments of the Courts below and remit the matters back to the Trial Court with a direction to conduct trial afresh taking into consideration the authorisation placed before us and dispose of the matter as expeditiously as possible in accordance with law.”
15. Bearing in mind the aforesaid exposition of law, I am of the considered view that the appellant-applicant ought to be granted one chance to place and prove on record the partnership deed. Accordingly, Cr.M.P. No. 464 of 2018 is allowed.
16. As regards the second question, Section 69 of the Partnership Act, deals with the effect of non-registration of the firm and reads thus:
“69. EFFECT OF NON-REGISTRATION:-
(1) No suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any Court by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm.
(2) No suit to enforce a right arising from a contract shall be instituted in any .
Court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm.
(3) The provisions of sub-sections (1) and (2) shall apply also to claim of set-
off or other proceeding to enforce a right arising from contract, but shall not affect-
(a) the enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm, or any right or power to realise the property of a dissolved firm; or
(b) the powers of an official assignee, receiver or Court under the r Presidency-towns Insolvency Act, 1909, (2 of 1909).or the Provincial Insolvency Act, 1920, (5 of 1920). to realise the property of an insolvent partner.
(4) This section shall not apply-
(a) to firms or to partners in firms which have no place of business in 1[the territories to which this Act extends], or whose places of business in 2 [the said territories] are situated in areas to which, by notification under 3[section 56], this Chapter does not apply, or
(b) to any suit or claim of set-off not exceeding one hundred rupees in value which, in the Presidency-towns, is not of a kind specified in section 19 of the Presidency Small Cause Courts Act, 1882,(15 of 1882) or, outside the Presidency-towns, is not of a kind specified in the Second Schedule to the Provincial Small Cause Courts Act, 1887, (9 of 1887) or to any proceeding in execution or other proceeding incidental to or arising from any ch suit or claim.”
17. On the issue whether an unregistered partnership firm is entitled to maintain a complaint under Section 138 of the Act, the law is not consistent as different views have been expressed by various High Courts.
18. Learned Division Bench of the Kerala High Court in Kerala Arecanut Stores vs. Ramkishore and Sons, AIR 1975 Ker 144, was ceased of a question whether the suit by a partner of an unregistered firm for recovery of money claimed on dishonour of the cheque endorsed in favour of the firm would be maintainable or would be barred under Section 69 (2) of the Partnership Act, holding the suit to be maintainable. It was held as under:
“10. Reference has been made to these provisions to indicate that the obligation of the drawer of a cheque as well as the indorser to the indorsee who is the holder in due course arises by virtue of statutory provisions. It is not as if there is any privity of contract between the maker of a cheque and the holder in due course. Any right of action available to such holder is not under any contract, for he would be a third Party to the contract and would not come within one of the exceptions enabling a third party to a contract to sue. But he is entitled to sue on his cheque by reason of the right conferred upon him by the statute. In fact, in the case of an indorsement of a pronote or of a cheque it is not an assignment of the debt as such but only of the property in the note or the cheque and it is by virtue of obtaining such property in the note or the cheque that the indorsee sues thereon. It is not necessary to advert to the several decisions which indicate that a person suing on a negotiable instrument is not suing by virtue of the assignment of the debt. That, we think, is well settled and therefore we are not referring to the decisions cited by counsel on this point. It is sufficient to state here, for the purpose of this case, that the right of action available to an indorsee of a cheque who comes to hold the cheque in due course is based upon conferment on him by the statutory provisions the right to sue the maker of the cheque and also the indorser. If that be the case the right that is sought to be enforced does not arise from a contract. It is not a suit by the indorsee to enforce a right arising out of a contract and therefore the bar under Section 69 (2) of the Partnership Act will not operate in such a case.”
19. However, Division Bench of Andhra Pradesh High Court in Amit Desai and another vs. M/s Shine Enterprises and another 2000 Cri. L.J. 2386, did not concur with the view taken by the Kerala High Court while dealing with a case of dishonour of the cheque where the complainant firm was having business dealings with the accused and the firm was not registered. It is held that the suit cannot be instituted and it was observed as under:
“15. The learned counsel Mr. C. Padmanabha Reddy further relied upon a ruling reported in Kerala Arecanut Stores v. M/s. Ramkishore and Sons & Another AIR 1975 Kerala 144. Their Lordships of Kerala High Court were pleased to hold that a suit by a partner for recovery of money on dishonour of cheque endorsed in favour of the firm is not barred. The learned counsel further relied upon a ruling reported in Abdul Gafoor vs. Abdurahiman, (1999) 2 Andh. LT (Cri.) 196. The learned Single Judge of Kerala High Court was pleased to hold that section 69 (2) of the Partnership Act is applicable only where the civil rights are invoked and not in criminal cases. Non-registration of the firm has no legal bearing on the criminal case. With due respect to the learned Single Judge of Kerala High Court, we prefer to deffer with the views expressed by him. Explanation to Section 138 of the Negotiable Instruments Act specifically laid down that the debt or other liability means a legally enforceable debt or other liability. Enforcement of legal liability has to be in the nature of civil suit because the debt or other liability cannot be recovered by filing a criminal case and when there is a bar of filing a suit by unregistered firm, the bar equally applies to criminal case as laid down in explanation (2) of Section 138 of the Negotiable Instruments Act.
16. Considering the above legal aspect, we hold that it is a fit case wherein this court can exercise the powers under section 482 Cr.P.C. for quashing the criminal case. Accordingly we quash C.C.No.88/97 which was filed against the petitioners herein and pending in the Court of the Judicial Magistrate of First Class, Madanapalle. Thus, the Criminal Petition is allowed.”
20. At this stage, it would be apposite to refer to the decision of the Hon’ble Supreme Court in BSI Ltd. vs. Gift Holdings Pvt. Ltd. (2000) 2 SCC 737, wherein the Hon’ble Supreme Court while clarifying the distinction between criminal and civil proceedings held that criminal prosecution is neither for recovery of money nor for enforcement of any security, Section 138 of the NI Act is a penal provision convicting .
and sentencing an offender for commission of the offence on proof of the guilt established after a criminal trial.
21. In Gurcharan Singh vs. State of Uttar Pradesh and another, 2002, Cri.L.J. 3682, a learned Single Judge of Allahabad High Court was dealing with an identical case between M/s Sterling Novelty Products, Moradabad (U.P.) a partnership firm and International Gifts Ltd. a company at Ontario, Canada, of which Gurcharan Singh was the President and had been made an accused. Gurcharan Singh petitioned the High Court and raised a dispute that respondent-firm was not registered and therefore, could not maintain the complaint. The learned Single Judge discussed Section 69 of the Partnership Act. It also considered the judgment rendered in Amit Desai (supra) and observed that the said judgment had not discussed the law involved except Section 69. The learned Single Judge thereafter referred to the judgment of the Hon’ble Supreme Court in the matter of BSI Ltd. (supra) and on the basis of the observations made therein, concluded that even if M/s Sterling Novelty Products was not a registered firm, the bar created under Section 69 of the Partnership Act had no application and the proceedings under Section 138 of the Act, were still maintainable.
22. In Beacon Industries vs. Anupam Ghosh, ILR 2003 KAR 4325, it was held as under:
“5. A careful reading of Section 69(2) of the Partnership Act clearly shows that an unregistered partnership firm is barred from filing a civil suit and there is no bar as such to file a private complaint and it is purely criminal liability on the part of the person who has issued the cheque. Even if the cheque issued by a partner of an unregistered firm for legally recoverably debt or otherwise and if such cheque dishonoured when it was presented for encashment, it amounts to a criminal liability. Therefore, the dismissal of a complaint by the Trial Court by relying on the decision of the Andhra Pradesh High Court referred to above is incorrect. Whenever a complaint is presented under Section 138 of the .
Negotiable Instruments Act, it is the duty of the learned Magistrate to take note of the cognizance and record the sworn statement of the complainant and his witnesses and after hearing if there is any prima facie case then it is the duty of the Court to issue summons to the accused.
6. In the case of Abdul Gafoor v. Abdurahiman, 1999(4) Crimes 98 (Ker.) the Kerala High Court held that an unregistered Partnership firm can prosecute complaint under Section 138 of the Negotiable Instruments Act and the effect of non-registration of firm under Section 69 of the Partnership Act is applicable only to a case involving civil rights.
Further, the Supreme Court in the case of BSI Limited and Anr. v. Gift Holdings Private Limited and Anr., 2000 SCC (Cri.) 538) has held that:
“… A criminal prosecution is neither for recovery of money nor for enforcement of any security etc. Section 138 of the Negotiable Instruments Act is a penal provision the commission of which offence entails a conviction and sentence on proof of the guilt in duly conducted criminal proceedings. Once the offence under Section 138 is completed the prosecution proceedings can be initiated not for recovery of the amount covered by the cheque but for bringing the offender to penal liability”.
Again in the case of Gurcharan Singh v. State of Uttar Pradesh and Anr., 2002(4) Crimes 165 (All) the Allahabad High Court has followed the above said judgment of the Supreme Court.
Therefore, in view of the above decisions of the Supreme Court as well as of the other High Courts, the contention of the respondent that filing of a criminal complaint by a partner of an unregistered firm is hit by Section 69(2) of the Partnership Act cannot be accepted. The said section has no application to the criminal cases. Under these circumstances it could be said that Section 69(2) of the Partnership Act is applicable only where the civil rights are invoked and not in criminal cases. Non-registration of the firm has no legal bearing on the criminal case. Hence, the finding recorded by the Trial Court is totally incorrect and illegal and the same is liable to be set aside.”
23. In Capital Leasing and Finance Co. vs. Navrattan Jain, (2005) 4 RCR .
(Cri) 330, the learned Single Judge of Punjab and Haryana High Court, chose to follow the Division Bench of Kerala High Court and held as under:
“25. A bare reading of the above shows that Section 69(2) prohibits the enforcement of rights in respect of an unregistered firm by way of a suit. The same does not relate to a criminal complaint. In Kerala Arecanut Stores v. Ramkishore and Sons and another, AIR 1975 Kerala 144, a Division Bench of the Kerala High Court held that provisions of Section 69(2) of the Partnership Act, provide that the suit by a partner for recovery of money of a dishonoured cheque, interest in favour of the firm is not barred. The following observations in the said case are apposite :
“It is sufficient to state here for the purpose of this case that the right of action available to an indorsee of a cheque who comes to hold the cheque in due course is based upon conferment on him by the statutory provisions the right to sue the maker of the cheque and also the endorser. If that be the case the right that is sought to be enforced does not arise from a contract. It is not a suit by the indorsee to enforce a right arising out a contract and therefore, the bar under Section 69(2) of the Partnership Act will not operate in such a case.”
26. Besides, the Supreme Court in Haldiram Bhujiawala and another v. Anand Kumar Deepak Kumar and another, 2000 (1) Unreported Judgments 603, held that a suit is not barred by Section 69(2) if a statutory right or a common law right is being enforced.
27. I n the case in hand the complainant has a statutory claim in terms of Section 138 N.I Act. Even otherwise Section 69 of the Partnership Act is confined to enforcement of a right arising out a contract by instituting a suit or other proceedings by an unregistered firm. The criminal complaint that has been filed cannot be treated as a suit or other proceedings to enforce any rights arising under a contract. Therefore, there is no bar to the criminal complaint that has been filed and the non-registration of the firm would not bar the prosecution of an accused on the ground that the firm was not registered.”
24. Similar issue came up before Division Bench of Karnataka High Court in .Gowri Containers vs. S.C. Shetty 2008 Cri. L.J. 498 and it was held as under:
” 9. Now coming to the contention of the respondents that in view of the provisions of Section 69(2) of the Indian Partnership Act, the amount under the transaction was not legally enforceable debt, reliance has been placed by the respondents learned advocate on a Division Bench decision of Andhra Pradesh High Court in Amit Desai and Anr. v. Shine Enterprises and Anr. 2000 Criminal Law Journal 2386 wherein in respect of an unregistered partnership firm, on the ground that the suit cannot be instituted by an unregistered firm, it was held that the debt against the accused was not a legally enforceable debt. That was the case in which, the second consignment received by the complainant could not be sold and it had been returned to the accused by dispatching through a lawyer and the accused had sent a credit note to the amount and promised to return the value of the stock returned to them. In that circumstances, the accused had issued a cheque and the complaint arose out of the dishonour of that cheque. The amount under the cheque arose out of that promise of the accused to return the value of the stock. That was a case of enforcement of a right arising out of such contract. That principle is not applicable to the fact of the present case.
10. The Supreme Court in the case of Kamal Pushpa Enterprises v. D.R.Construction Co. AIR 2000 Supreme Court 2576 has observed that the bar to enforce rights arising from contract under Section 69(2) of the Partnership Act applies only in respect of suits and not applicable to the proceedings before the Arbitrator. In a direct decision of this Court Beacon Industries, Rep. by Its Partner, Bangalore v. Anupam Ghosh the observation of this Court is that an unregistered firm is barred from filing a civil suit, but that there is no bar to initiate a private complaint for the offence punishable under Section 138 of the Negotiable Instruments Act.
11. The words,’ legally enforceable debt or other liability’ used in the explanations to Section 138 of the Negotiable Instruments Act refer to the enforceability in law of the debt or the liability in question and have no reference to the right of the person enforcing it. If there is no legal impediment for enforceability of a debt or other liability in general, disability of a particular individual or entity to enforce such right to recover such debt or liability does not render such debt or liability not legally enforceable debt or liability. The .
intention of the legislature is to make non payment of amounts of cheques despite service of notice as per the provisions of the Act an offence only when the cheque has been issued for payment of a legitimate debt or liability. Amount required to be paid as price of articles or goods is a legitimate debt or liability and therefore it is a legally enforceable debt or liability. The disability of an unregistered firm under Section 69(2) of the Indian Partnership Act to file a suit to enforce a right arising out of a contract does not make such debt or liability not a legally enforceable debt or liability.”
25. In Dabasree Das Baishnab vs. FI Multimedia Consultants, 2011 (1) Crimes (HC) 131, a learned Single Judge of High Court of Gauhati, held as under:
“8…………For the purpose of resolving the controversy raised in these petitions, I feel it appropriate to refer to the provisions of Section 69(2) of the Partnership Act which reads as follows:
“No suit to enforce a right arising from a contract shall be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm.”
9. From a careful reading of Section 69(2) it appears that the said section prohibits institution of suits by or on behalf of an unregistered firm against a third party for enforcing the rights and liabilities arising from a contract. This Court in the case of Indrajit Gogli v. Auto Sales and Service Station, (2008) 3 GLR 440, while disposing a criminal petition filed under Section 82, Cr.P.C observed as follows:
“More importantly, nothing contained in Section 69, prohibits prosecution, in terms of Section 138 of the Act, by an unregistered firm, of a person, who may have issued a cheque addressed to such a firm, when such a cheque is dishonoured and, upon notice of demand for payment having been received by the drawer, the drawer fails to make payment. Considered, this, it is clear that there was no bar, on the part of the present unregistered firm, to institute criminal prosecution against the petitioner, as accused, for dishonour of the said cheque.”
10. Relying on the decision held in the case of Amit Desai v. Shine Enterprises, 2000 Crl. LJ. 2386, a Division Bench judgment of the Andhra Pradesh High Court, the learned Counsel appearing for the petitioner has submitted that an unregistered firm cannot initiate action under Section 138 of NI Act. While deciding the case aforesaid, the Division Bench (supra) differed with the view taken by the Kerala High Court in the case of Kerala Arecanut Stores v. Ramkishore and Sons, AIR 1975 Kerala 144 and held that the explanation to Section 138 of the Nl Act specifically laid down that the debt or other liability means legally enforceable debt or other liability. It was observed by the Division Bench as under:
“Enforcement of legal liability has to be in the nature of civil suit because the debt or other liability cannot be recovered by filing a criminal case and when there is a bar of filing a Suit by unregistered firm, the bar equally applies to criminal case as laid down in Explanation (2) of Section 138 of the NI Act.”
In the case of Kerala High Court (supra), it was held that a suit by a partner for recovery of money on dishonoured cheques endorsed in favour of the firm is not a bar. This was also the view taken by this Court in the case of Indrajit Gogoi (supra). For the sake of convenience and proper appreciation let me quote the provision of Section 138 of the NI Act as follows:
“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 out with that Bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which mayextend to twice the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply unless–
(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.”
11. The above statutory provision of the NI Act provides that if the drawer fails to make the payment of the amount mentioned in the cheque to the holder of the same, within fifteen days from the date of the receipt of the notice of demand, he shall be deemed to have committed an offence and shall be liable to be convicted and punished with imprisonment as prescribed by the Section 138. Therefore, it appears that failure of the drawer to pay the cheque amount after the said statutory period, creates criminal liability against him. This failure on the part of the drawer creates aright, in favour of the holder of such dishonoured cheque; in whose favour the same is issued, for initiating criminal prosecution before a Court not inferior to that of a Metropolitan Magistrate or a Judicial Magistrate, First Class, who shall have the power to try and punish they drawer under Section 138 of the NI Act. Therefore, the moment cheque, in lieu of cash amount, is hand over the drawer stands liable either to pay the amount within fifteen days from the date of receipt of the demand notice, if the cheque is not honoured by the Drawer’s Bank or to face criminal action in the Court of law having jurisdiction to try cases under Section 138 of NI Act. The NI Act does not provide any bar for launching criminal prosecution against such erring drawer. The Sub-section (2) of Section 69 of the Partnership Act debars a suit to enforce a right arising from a contract by or on behalf of a firm against any third party if the firm is not registered under the Act. The said .
provision relates to instituting a suit for enforcing a right arising from a contract. This does not debar initiating a criminal prosecution for launching criminal action as prescribed by the special statute. In view of the above, with due respect, I prefer to differ with the views expressed in the case of Amit Desai (supra) and agree with the decision held in the case of Indrajit Gogoi (supra) and in the case of Kerala Arecanut Stores (supra). I
12. n the light of the above discussion, I am of the considered opinion that the criminal prosecution initiated by the complainant against the present petition is not hit by Section 69 of the Partnership Act. Therefore, I find no sufficient ground to interfere with the impugned, order passed by the learned Magistrate, First Class.”
26. From the discussion so far, it is abundantly clear that an unauthorised partnership firm cannot approach the Court for enforcement of any right arising from a contrat, hence civil proceedings for recovery of money would be barred by virtue of sub Section (2) of Section 69 of the Partnership Act. However, proceedings under Section 138 of the NI Act cannot be treated as civil suit for recovery of cheque amount with interest as was held by the Hon’ble Supreme Court in R Vijayan vs. Baby and another (2012) 1 SCC 260 wherein it was observed:
“16…..It is sometimes said that cases arising under section 138 of the Act are really civil cases masquerading as criminal cases. The avowed object of Chapter XVII of the Act is to “encourage the culture of use of cheques and enhance the credibility of the instrument”. In effect, its object appears to be both punitive as also compensatory and restitutive, in regard to cheque dishonour cases. Chapter XVII of the Act is an unique exercise which blurs the dividing line between civil and criminal jurisdictions. It provides a single forum and single proceeding, for enforcement of criminal liability (for dishonouring the cheque) and for enforcement of the civil liability (for realization of the cheque amount) thereby obviating the need for the creditor to move two different fora for relief. This is evident from the following provisions of Chapter XVII of the Act.
(i) The provision for levy of fine which is linked to the cheque amount and may extend to twice the amount of the cheque .
(section 138) thereby rendering section 357(3) virtually infructuous in so far as cheque dishonour cases are concerned.
(ii) The provision enabling a First Class Magistrate to levy fine exceeding Rs.5,000/- (Section 143) notwithstanding the ceiling to the fine, as Rs.5,000/- imposed by section 29(2) of the Code;
(iii) The provision relating to mode of service of summons (section
144) as contrasted from the mode prescribed for criminal cases in section 62 of the Code;
(iv) The provision for taking evidence of the complainant by affidavit (section 145) which is more prevalent in civil proceedings, as contrasted from the procedure for recording evidence in the Code;
(v) The provision making all offences punishable under section 138 of the Act compoundable.
17. The apparent intention is to ensure that not only the offender is punished, but also ensure that the complainant invariably receives the amount of the cheque by way of compensation under section 357(1)(b) of the Code. Though a complaint under section 138 of the Act is in regard to criminal liability for the offence of dishonouring the cheque and not for the recovery of the cheque amount, (which strictly speaking, has to be enforced by a civil suit), in practice once the criminal complaint is lodged under section 138 of the Act, a civil suit is seldom filed to recover the amount of the cheque. This is because of the provision enabling the court to levy a fine linked to the cheque amount and the usual direction in such cases is for payment as compensation, the cheque amount, as loss incurred by the complainant on account of dishonour of cheque, under section 357 (1)(b) of the Code and the provision for compounding the offences under section 138 of the Act. Most of the cases (except those where liability is denied) get compounded at one stage or the other by payment of the cheque amount with or without interest. Even where the offence is not compounded, the courts tend to direct payment of compensation equal to the cheque amount (or even something more towards interest) by levying a fine commensurate with the cheque amount. A stage has .
reached when most of the complainants, in particular the financing institutions (particularly private financiers) view the proceedings under section 138 of the Act, as a proceeding for the recovery of the cheque amount, the punishment of the drawer of the cheque for the offence of dishonour, becoming secondary.”
27. The judgments in Abdul Gafoor vs. Abdurahiman, 1999 (2) Ker LT 634, Gurcharan Singh case (supra) and Beacon Industries (supra) were followed by the learned Single Judge of the Madras High Court in Karthick and Company vs. Vadivel Sizing and Weaving Mills (Pvt.) Ltd. (2013) 7 RCR, (criminal) 140 and it was held that even if the complainant remains to be unregistered firm, it is legally competent to lay complaint under Section 138 of the Act.
28. The issue in question recently came up before a learned Single Judge of Delhi High Court in Smt. Rani Kapoor vs. M/s Silvermount (2017) Vol. 242 DEL.363 and after taking into consideration all the aforesaid judgments including the judgment of the Hon’ble Supreme Court in BSI Ltd. (supra), it was held as under:
“12. It is thus apparent that on finding of the guilt arrived at by the criminal Court the accused is liable to a sentence of imprisonment which may extend to two years, or fine or with fine which may extend to twice the amount of cheque, or with both. Thus discretion is granted to the criminal Court to either award imprisonment or fine or both. Thus proceedings under Section 138 of the NI Act are not recovery proceedings and in a given case the criminal Court may only award sentence of imprisonment. Irrespective of a complaint proceeding under Section 138 of the NI Act, a creditor has the right to institute civil suit for recovery of his debt in which case the same would be recoverable only if it is a legally enforceable debt or other liability.
13. Following the decision of the Supreme Court in BSI Ltd. (supra) this Court is of the considered view that the decisions of the Kerala High Court, Karnataka High Court and Punjab & Haryana High Court as noted above lay down the correct law. Thus the issue raised by learned counsel for the petitioner that since the complainant respondent is not a registered firm it cannot maintain a complaint under Section 138 of the NI Act is rejected. Petition and application are dismissed.”
29. From the aforesaid discussion, it would be noticed that save and except an isolated authority of the Division Bench of Andhra Pradesh High Court in Amit Desai’s case (supra), all other High Courts in the country, have categorically held that the proceedings under Section 138 of the N.I. Act, are not recovery proceedings.
Therefore, even an unregistered Partnership firm can maintain a complaint under Section 138 of the Act.
30. That apart, it would further be noticed that the view taken by the Andhra Pradesh High Court, in fact, is contrary to the ratio of the judgment laid down by the Hon’ble Supreme Court in R. Vijayan’s case (supra). Therefore, in the given facts and circumstances, I am of the considered view that the criminal prosecution initiated by the complainant against the respondent is not hit by Section 69 of the Partnership Act.
31. Consequently, I find merit in this appeal and the same is allowed. The order/judgment dated 12.3.2018 passed by learned Judicial Magistrate 1 st Class, Manali, District Kullu, H.P. in Criminal Case No.1630I/2015/31-III/2017 is set-aside and the matter is remitted back to the learned trial Magistrate, who shall afford an opportunity to the appellant to lead evidence with regard to the factum of partnership as also due authorisation, if any, in favour of Sh. Aakash Ahuja. Needless to say that the respondent shall have corresponding right of not cross-examining the appellant witnesses, but shall also have a right to lead evidence.
32. The parties through their counsel(s) to appear before the learned trial Magistrate on 24.9.2018.
33. The appeal is disposed of in the aforesaid terms, so also the pending applications, if any.
11th September, 2018.