Dishonour of Cheque; Ramanee Narayanan Vs. C.K. Mukundan [Kerala High Court, 04-08-2016]

Negotiable Instruments Act, 1881 – Ss. 138 & 142 – Cheques issued from their individual accounts and not from the accounts maintained by the Partnership Firm – In such case, the Partnership Firm is not at all a necessary party to be arraigned as an accused in the complaint – If Partnership Firm is arraigned as the accused in this case, the complaint itself will not be maintainable simply because of the fact that the cheque in question was not one issued from the account maintained by the Partnership Firm.

# Cheque

# 2016 (3) KLT 696 : 2016 (4) KHC 296

IN THE HIGH COURT OF KERALA AT ERNAKULAM

B. KEMAL PASHA, J.

Crl. Appeal No. 1201 of 2009

Dated this the 4th day of August, 2016

STC 989/2008 OF CHIEF JUDICIAL MAGISTRATE COURT, PALAKKAD

APPLICANT/APPELLANT

RAMANEE NARAYANAN

BY ADVS.SRI.P.VIJAYA BHANU SRI.M.REVIKRISHNAN

RESPONDENT(S)/RESPONDENTS

1. C.K.MUKUNDAN, AGED 45 YEARS, S/O.SANKARAN NAIR, DURGA NIVAS, MUNDUR P.O., PALAKKAD DISTRICT, NOW RESIDING AT E-10, GROUND FLOOR, GREATER KAILASH-1, NEW DELHI-110048.

2. STATE OF KERALA, REPRESENTED BY THE PUBLIC PROSECUTOR, HIGH COURT OF KERALA, ERNAKULAM.

R1 BY ADV. SRI.R.SUDHISH SMT.M.MANJU R2 BY PUBLIC PROSECUTOR SMT.MAYA

J U D G M E N T

Precisely, the question to be considered here is whether the Partnership Firm of which the accused before the court below was the Managing Partner had also to be arraigned as an accused to maintain a complaint before the court below filed under

# Section 142 of the Negotiable Instruments Act

(for short ‘N.I. Act’) alleging an offence punishable under Section 138 of the N.I. Act?

2. Challenging the judgment of acquittal passed by the Chief Judicial Magistrate’s Court, Palakkad in S.T.Case No.989/2008, the complainant before the court below has come up in appeal. The complainant is a businessman dealing in computers and accessories. He had supplied computers and accessories to the Partnership Firm named ‘Souwbhagya Associates’, Palakkad, of which the accused was the Managing Partner, and one Smt. V.A. Suseela was one of the Partners. In fact, the accused and the said Smt. V.A. Suseela were doing business in the Firm named ‘Souwbhagya Associates’.

3. Through various purchases, an amount of ₹14,32,325/- fell due to the complainant. The accused being the Managing Partner and the said Smt.V.A. Suseela, who was the other Partner of the Firm, had shouldered the responsibility, and took over the liability to discharge the said debt and they issued three cheques to the complainant. The accused issued Exhibit-P1 cheque for ₹5,00,000/- and another cheque for ₹5,00,000/- by undertaking the liability to discharge an amount of ₹10,00,000/- out of the total amount, from his individual account. Smt.V.A.Suseela issued another cheque for the balance amount of ₹4,32,325/-, which was also issued from her individual account.

4. In this particular case, when Exhibit-P1 cheque was presented for collection, the same returned dishonoured for insufficiency of funds in the account of the accused. A demand notice as contemplated under Section 138(b) of the N.I. Act was caused to be issued to the accused in the form of a lawyer’s notice, the copy of which is Exhibit-P4. The said demand notice evoked no response at all, and hence the complaint.

5. On the side of the complainant, PW-1 was examined and Exhibits-P1 to P9 were marked. No defence evidence was adduced. The court below found the accused not guilty of the offence punishable under Section 138 of the N.I. Act, and acquitted him under Section 255(1) Cr.P.C., through the impugned judgment.

6. Heard the learned counsel for the appellant and the learned counsel for the 1 st respondent.

7. The learned counsel for the appellant has argued that the liability in question was taken over by the Managing Partner as well as the other Partner and they have shouldered the responsibility to discharge the debt of the Firm. Apart from that, the cheque in question was one issued by the accused from the individual account maintained by the accused at the Bank, and not one issued from the account of the Partnership Firm. The cheque was not one issued from the account of the Partnership Firm by the accused as one for and on behalf of the Partnership Firm. It is argued that the court below has lost sight of these aspects and has found fault with the complainant in not arraigning the Partnership Firm as an accused. According to the learned counsel for the appellant, the judgment of acquittal passed by the court below is liable to be reversed.

8. Per contra, the learned counsel for the 1 st respondent has argued that the transactions in question were between the Partnership Firm named M/s. Sowbhagya Associates, of which the accused was the Managing Partner, and the complainant, and in such case, the complainant ought to have arraigned the Partnership Firm also as an accused within the meaning of Explanation (a) to Section 141 of the N.I. Act. Therefore, according to the learned counsel for the 1 st respondent, the impugned judgment does not call for any interference at all.

9. In this particular case, it has to be noted that even though the computers and accessories were supplied by the complainant to the Partnership Firm named M/s.Sowbhagya Associates, it is the case of the complainant that the aforesaid 3 cheques were issued by the accused as well as the said Smt.V.A.Suseela to the complainant, in discharge of the whole liability of M/s.Sowbhagya Associates, from the individual account maintained by the accused and the said V.A.Suseela. Admittedly, Exhibit-P1 cheque was not one issued from the account maintained by the Partnership Firm. Exhibit-P1 cheque is not one issued by the accused for and on behalf of the Partnership Firm, from the account maintained by the Partnership Firm. Had it been so, Exhibit-P1 cheque could have been styled as a cheque issued by the Partnership Firm, which necessitates the arraignment of the Partnership Firm as an accused, in order to maintain the complaint.

10. As per Section 141(1) of the N.I. Act, “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.” The Explanation to Section 141 says that ‘for the purpose of Section 141, (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.’

11. In

# Sheeja Mol v. State of Kerala and Others, 2015 (4) KLT 748

this Court had occasioned to deal with the maintainability of a complaint in a case wherein, the Partnership Firm was not arraigned as an accused, when the cheque of the Partnership Firm was issued by its Managing Partner or other Partners. This Court has held that when Partners alone were arraigned as accused without arraigning the Partnership Firm as an accused in a case, wherein, the cheque was issued from the account of the Partnership Firm, such a complaint for an offence under Section 138 of the N.I. Act, is not maintainable.

12. The learned counsel for the 1 st respondent is relying on the decision in

# Aneeta Hada v. Godfathers Travels and Tours Pvt. Ltd., 2012 (2) KLT 736 (SC)

wherein it was held in the case of a company where, an authorised signatory of the company had issued the cheque of the company in discharge of a debt of the company, such an authorised signatory cannot be made liable for prosecution for the offence under Section 138 of the N.I. Act, without the company being arraigned as an accused. The aforesaid cases relate to instances, wherein the cheques were issued from the account of the Partnership Firm or the account of the company. When such cheques were issued from the account of the company or Partnership Firm, such company or Partnership Firm, as the case may be, shall be arraigned as an accused in order to maintain a complaint for the offence under Section 138 of the N.I. Act.

13. The learned counsel for the appellant has invited the attention of this Court to the wordings in Section 138 of the N.I. Act, ‘of any debt or other liability’. As per Section 138 of the N.I. Act, “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 unpaid ……….”

14. According to the learned counsel for the appellant, therefore, it is evident that a person can issue a cheque for his own debt or for any other liability. In order to maintain a prosecution for the offence under Section 138 of the N.I. Act, such a cheque shall be issued from an account maintained by him, in discharge in whole or in part of any debt or other liability. The argument is that any such debt or other liability need not be the original liability of the drawer of the cheque himself. It is argued that when a person is shouldering the responsibility and voluntarily takes up the liability of another person and issues a cheque in discharge of that liability, an offence under Section 138 of the N.I. Act can be attracted against such person, who issues the cheque since he assumes the status of a guarantor of the original debtor.

15. The learned counsel for the appellant has invited the attention of this Court to Exhibit-P9 agreement entered into between the complainant as the First Party and (1) the accused herein, the Managing Partner and (2) Smt.V.A.Suseela, Partner, for and on behalf of M/s.Sowbhagya Associates as the Second Party. It has been clearly admitted in Exhibit-P9 that the Second Party named M/s.Sowbhagya Associates, of which, the first named was the Managing Partner and the second named was the Partner had purchased computers from the complainant for the period from October, 2003 to 05.04.2004 and an amount of ₹14,32,325/- was due to the complainant from the said Second Party. As per Exhibit-P9, the accused as well as Smt.V.A.Suseela have agreed to pay the said amount in 3 instalments namely, the first instalment for ₹ 4,32,325/-, the second instalment for ₹5,00,000/- and the third instalment for ₹5,00,000/- within 30.04.2004. By way of such payment in discharge of the said liability, 3 cheques were issued as follows: Cheque No.062822 dated 31.07.2004, Cheque No.528583 dated 31.08.2004 and Cheque No.528584 dated 30.09.2004. It has been undertaken in Exhibit-P9 that the said cheques shall not, at any cost, be dishonoured. It has also been averred that in case of any dishonour of the cheque, the complainant is entitled to proceed against the Partnership Firm as well as the aforesaid persons, who represented the Partnership Firm, through civil proceedings as well as criminal proceedings.

16. The learned counsel for the 1 st respondent has pointed out that the said two persons had represented the Partnership Firm and the cheques were issued for and on behalf of the Firm and therefore, in such case, in order to maintain the present complaint, the complainant ought to have arraigned the Partnership Firm also as an accused in the complaint. From the evidence in the case, as well as from the averments in the affidavit in lieu of chief examination of PW-1 and the contents of Exhibit-P9, it is evident that the accused, as the Managing Partner, and the said Smt.V.A.Suseela, as the other Partner of the Partnership Firm, had come forward through Exhibit-P9 and undertaken to discharge the liability of the Partnership Firm. In order to discharge the said liability of the Partnership Firm, they have divided the amount into three as ₹4,32,325/-, ₹5,00,000/- and another ₹5,00,000/-. The accused, being the Managing Partner, took the liability to discharge the amount of ₹10,00,000/- and the said Smt.V.A.Suseela took the liability to discharge the amount of ₹4,32,325/-. Smt.V.A.Suseela had allegedly issued a cheque for ₹4,32,325/- from the individual account maintained by her at her Bank. Similarly, the accused had issued two cheques for ₹5,00,000/- each from his individual account maintained by him with his Bankers. Exhibit-P1 cheque is one of the said two cheques issued by the accused.

17. Admittedly, Exhibit-P1 cheque was not one issued from the account maintained by the Partnership Firm; whereas, the same was issued from the individual account maintained by the accused with his Bankers. It cannot be said that a person cannot undertake the liability of another person and to discharge the same for and on behalf of such another person. It cannot be said that when such a cheque is dishonoured, an offence under Section 138 of the N.I. Act cannot be attracted. It cannot be said that in order to maintain a complaint alleging such an offence under Section 138 of the N.I. Act, in such a case, the person who has shouldered the responsibility and stepped in by undertaking to clear the liability of the other person, cannot be prosecuted for the offence, without arraigning the other person also as an accused.

18. As repeatedly pointed out by the learned counsel for the appellant, here, in this particular case, the accused has shouldered the responsibility and undertaken the liability to discharge an amount of ₹5,00,000/-, due to the complainant, from the Partnership Firm, of which, he was the Managing Partner. In order to discharge the said liability, he issued a cheque from his individual account maintained by him with his Bankers. The question whether Exhibit-P9 agreement is supported by consideration or not, is not a question to be decided here.

19. Admittedly, the accused was the Managing Partner of the Firm. The other person, who issued one of the cheques, was the Partner, who was present along with the accused. A Partnership Firm has no separate legal existence other than that of its Partners. It is not a legal entity or a legal person. A Partnership Firm may sue or be sued by two or more Partners, within the meaning of Order XXX Rule 1 C.P.C.

20. The learned counsel for the appellant has invited the attention of this Court to the decision in

# I.C.D.S. Ltd. v. Beena Shabeer, 2002 (3) KLT 218 (SC)

wherein it was held that:

“Section 138 leaves no manner of doubt that for whatever reason it may be, the liability under this provision cannot be avoided in the event the same stands returned to the banker unpaid, the Legislature has been careful enough to record not only the discharge in whole or in part of any debt but the same includes other liability as well. The issue as regards co-extensive liability of the guarantor and the principal debtor, in our view, is totally out of the purview of Section 138 of the Act, neither the same calls for any discussion therein. The language of the statute depicts the intent of the lawmakers to the effect that wherever there is a default on the part of one in favour of another and in the event a cheque is issued in discharge of any debt or other liability there cannot be any restriction or embargo in the matter of application of the provisions of Section 138 of the Act.’

21. Unlike in the case of a company, the liability of a Partnership Firm is necessarily the liability of its Partners. The Partners of a Partnership Firm cannot take shelter under the cover of ‘limited liability’ as in the case of a company. When by looking through that angle, it cannot be said that Exhibit-P9 is not supported by consideration. It was the duty of the accused, being the Managing Partner, and the other accused, being the Partner to discharge the debt of their institution, which was only a Partnership Firm. They came forward and willingly shouldered the responsibility and undertaken the liability to discharge the debt. They willingly issued cheques from their individual accounts and not from the accounts maintained by the Partnership Firm. In such case, the Partnership Firm is not at all a necessary party to be arraigned as an accused in the complaint.

22. If Partnership Firm is arraigned as the accused in this case, the complaint itself will not be maintainable simply because of the fact that the cheque in question was not one issued from the account maintained by the Partnership Firm. The Partnership Firm was not in any way associated with Exhibit-P1. It is a cheque individually issued by the accused from his own account maintained with his Bankers.

23. From all the above, it can be safely concluded that when the accused had voluntarily stepped in by shouldering the responsibility and by taking up the liability to discharge an amount of ₹5,00,000/- due to the complainant from the Partnership Firm, of which the accused was its Managing Partner and issued Exhibit-P1 cheque from the individual accounts maintained by him with his Bankers with the undertaking through Exhibit-P9 that at any cost, the cheque would not be dishonoured, it clearly clothes the complainant with the authority to proceed against the accused, that too without arraigning the Partnership Firm as an accused, for the offence under Section 138 of the N.I. Act, in case of the dishonour of the cheque as contemplated under Section 138 of the N.I. Act. Therefore, the impugned judgment of acquittal passed by the court below is liable to be reversed. There is sufficient evidence in the case, to invite the presumptions under Sections 118(a) and 139 of the N.I. Act in favour of the complainant. The accused has not chosen to rebut the said presumptions. The guilt of the accused under Section 138 of the N.I. Act clearly stands proved. The acquittal of the accused through the impugned judgment has resulted in substantial miscarriage of justice. Matters being so, this Court is satisfied that the impugned judgment is liable to be reversed, and the 1 st respondent/accused is liable to be convicted under Section 138 of the N.I. Act.

24. Considering the submissions made by the learned counsel for the 1 st respondent, this Court is of the view that a lengthy sentence of imprisonment at this belated point of time need not be imposed on the accused, in the interest of justice. This Court is of the view that a sentence of imprisonment till the rising of the court and an order to pay an amount of ₹5,00,000/- (Rupees Five Lakhs only) as compensation to the complainant under Section 357(3) Cr.P.C. within a period of three months from today, in default, to undergo simple imprisonment for six months will meet the ends of justice in this case.

In the result, this Crl.Appeal is allowed and the impugned judgment is set aside. The 1 st respondent/accused is found guilty of the offence punishable under Section 138 of the N.I. Act, and he is convicted thereunder. He is sentenced to undergo imprisonment till the rising of the Court and to pay an amount of ₹5,00,000/- (Rupees Five Lakhs only) as compensation to the complainant under Section 357(3) Cr.P.C., within three months from today, in default, to undergo simple imprisonment for six months.

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