Joint And Several Liability Of Partners Prevails Over Technical Objections Of Non-Notice To Firm: Supreme Court Restores Cheque Dishonour Complaint

Supreme Court Rules That Non-Arraignment Of Partnership Firm Does Not Invalidate Complaint Under Section 138 NI Act. Supreme Court of Indiaheld that a cheque dishonour complaint under Section 138 of the Negotiable Instruments Act, 1881 is maintainable even if the partnership firm is not arraigned as an accused or served statutory notice, provided the partners are issued notice and made parties to the complaint. The Court categorically stated:

“A partnership firm in the absence of its partners cannot at all be considered to be a juristic entity in law... the partners are personally, jointly and severally liable along with the partnership firm.” [Para 6.9]

Setting aside the judgment of the Madras High Court which had quashed the complaint on technical grounds, the Supreme Court restored the complaint for adjudication on merits.

The appellant, Dhanasingh Prabhu, had advanced ₹21,00,000 to a partnership firm ‘MouriyaCoirs’, represented by Respondents 1 and 2 (partners), for business purposes. To discharge this liability, a cheque was issued by one partner in the name of the firm. The cheque was dishonoured with the reason “account frozen”. The appellant issued statutory notice only to the two partners and subsequently filed a complaint under Section 138 read with Section 142 of the NI Act.

The Madras High Court quashed the complaint on the ground that the partnership firm was neither issued a statutory notice nor arraigned as an accused, relying on Section 141 of the NI Act.

Aggrieved, the appellant approached the Supreme Court.

Notice to Partners Equivalent to Notice to Firm

The main issue before the Supreme Court was whether failure to serve notice to the partnership firm or to arraign it as an accused invalidates the prosecution under Section 138 of the NI Act.

Referring to the distinction between companies and partnership firms, the Court held:“Unlike a company, a partnership firm does not possess a separate legal personality; it is merely a compendious term for its partners.” [Para 7.9]

The Court categorically ruled:“Notice to partners is notice to the firm. Even if the firm is not arraigned, complaint against the partners is maintainable since the liability is joint and several, not vicarious.” [Para 6.10]

Distinction Between Company and Firm

The Court extensively traced the jurisprudence distinguishing a company and a partnership firm, relying on landmark cases such as Salomon v. Salomon (1897 AC 22), Bacha F Guzdar v. CIT (1954) 2 SCC 563, Dulichand Laxminarayan v. CIT (AIR 1956 SC 354), and CIT v. R.M. Chidambaram Pillai (1977) 1 SCC 431.

The Court observed:“A company is a separate juristic person, distinct from its directors, hence vicarious liability applies. A firm is nothing but a group of partners; liability is joint and several, hence technical objections of non-notice to the firm do not apply.” [Para 9.7]

The Court further clarified:“If the complainant had proceeded only against the partnership firm and not the partners, possibly the complaint could have failed, but proceeding against the partners alone is sufficient to sustain the complaint.” [Para 6.9]

Interpretation of Section 141 of NI Act: Legal Fiction Explained

The Supreme Court explained the legal fiction under Section 141 NI Act, which equates a “company” to include a “firm” and a “director” to mean a “partner”.

“Section 141 creates a deeming fiction to ensure that when a firm commits an offence, the partners are deemed guilty… but since the firm is not a separate legal person, proceeding against partners suffices.” [Para 9.9]

The Court held that precedents like Aneeta Hada (2012) 5 SCC 661 and Dilip Hariramani (2022 SCC OnLine SC 579), which mandated arraigning companies as accused, were inapplicable to partnership firms.

Court Allows Impleadment of Firm, But Maintains Complaint Is Otherwise Valid

The Court granted permission to the appellant to implead the firm as an accused, stating:“Permission is granted to arraign the partnership firm, but absence of such arraignment earlier was not fatal to the proceedings.” [Para 10]

The Supreme Court concluded:“The High Court erred in quashing the complaint; the order is set aside and the complaint restored for disposal on merits.” [Para 11]

This judgment resolves conflicting views in cheque dishonour cases involving partnership firms and clarifies that complainants need not necessarily implead the firm as an accused if the partners are named and served. The Court reinforced the principle of joint and several liability of partners, minimizing procedural technicalities from defeating substantive justice.

Date of Decision:14th July 2025