138 NI Act | Conviction Founded on Erroneous Presumption of Fact is Perverse: Madras High Court Sets Aside Partner’s Conviction

“There has been a total non application of mind” –  In a significant ruling on 24 February 2026, the Madras High Court held that a conviction under Section 138 of the Negotiable Instruments Act cannot stand when it is founded on a fundamental factual error regarding the identity of the accused.

Justice Sunder Mohan, exercising revisional jurisdiction under Sections 397 and 401 CrPC, set aside the concurrent conviction of a partner while remanding the matter for retrial against the firm and the partner. The acquittal of the co-partner was confirmed.

The Court declared that findings based on an “erroneous presumption of fact” are perverse and legally unsustainable.

Cheque Issued by Firm, Partner Alone Convicted

The case arose from a complaint filed by M/s. Soliswara Tex alleging that M/s. Rajalakshmi Fabrics owed Rs. 48,97,397/- towards five invoices. A cheque for Rs. 47 lakhs dated 25.05.2017 was issued from the firm’s account and signed by the petitioner, who was arrayed as A2.

Upon dishonour of the cheque for the reason “Payment stopped by the drawer,” statutory notice was issued and prosecution under Section 138 NI Act was initiated against the firm (A1), the petitioner (A2), and another partner (A3).

The trial court acquitted the firm and A3 but convicted A2, sentencing him to 11 months’ simple imprisonment and directing payment of twice the cheque amount as compensation. The appellate court confirmed the conviction.

“The First Accused is Actually the Firm” – Fundamental Error in Appreciating Liability

The High Court found that the Magistrate committed a serious factual error while analysing liability under Section 141 NI Act. Extracting the trial court’s reasoning, the High Court noted that the Magistrate observed there were no averments to show that “the 1st and 3rd accused persons were in charge of and responsible for the conduct of the affairs of the firm.”

Justice Sunder Mohan pointed out the glaring flaw:

“The above extract would reveal that the learned Magistrate has proceeded on the premise that the first and third accused persons are incharge of the conduct of the firm whereas the first accused is actually the firm. There has been a total non application of mind in this regard.”

Thus, the firm was acquitted on a mistaken understanding of its identity, while the partner was convicted. The appellate court failed to notice this foundational error.

The High Court held that such findings of guilt, resting on a mistaken factual premise, are “perverse and are liable to be set aside.”

“Liability of Partners is Joint and Several” – But Conviction Cannot Be Sustained on Confused Reasoning

The respondent relied on the Supreme Court’s decision in Dhanasingh Prabhu v. Chandrasekar (2025) 10 SCC 96 to argue that even if the firm is not convicted, partners can be held liable since a partnership firm is not a separate legal entity like a company.

The High Court quoted the Supreme Court’s observation:

“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.”

However, Justice Sunder Mohan clarified that this principle did not apply to cure the defect in the present case. This was not a situation where the firm was omitted from prosecution. The firm was arrayed as an accused but was acquitted because of misappreciation of facts.

The conviction of the partner, therefore, could not be sustained on a reasoning tainted by confusion regarding who constituted the accused.

Presumption Under Section 139 and Defence Evidence

The Court noted that the petitioner did not dispute his signature on the cheque nor that it was issued from the firm’s account. Consequently, the statutory presumption under Section 139 NI Act arose in favour of the complainant.

The defence attempted to rebut the presumption by producing evidence suggesting that the invoices were forged and that there were no corresponding entries in sales tax returns during the relevant period.

However, the High Court observed that before examining rebuttal of presumption on merits, the foundational error regarding identity and liability had to be corrected.

Revisional Jurisdiction Invoked to Order Retrial

Invoking its powers under Sections 397 and 401 CrPC, the High Court held that the “error apparent on the face of the record” justified interference in revision.

The matter was remanded for retrial against the firm (A1) and the petitioner (A2). The acquittal of A3 was confirmed, as there were no specific allegations regarding her role in the conduct of the firm’s affairs.

The Court further clarified that no separate notice was required to be issued to the firm for remand, observing that a partnership firm “is not a legal entity, separate and distinct” in the manner a company is.

The trial court was directed to consider the evidence already adduced, permit additional evidence if necessary, and conclude the trial within two months.

The Madras High Court’s decision underscores that criminal liability under the Negotiable Instruments Act cannot be determined on confused or mistaken assumptions regarding the identity of the accused.

“Findings of guilt based on erroneous presumption of fact are perverse.”

The ruling reinforces that while partners of a firm may bear joint and several liability for dishonour of cheques, such liability must be adjudicated on a legally sound and factually accurate foundation. Where the trial court proceeds on a mistaken premise regarding who constitutes the accused, the conviction cannot survive.

Date of Decision: 24/02/2026