Wednesday, 12 February 2020

Whether prosecution for dishonour of cheque filed by unregistered partnership firm is maintainable?

 In this background, there is no point in stretching
the bar which is in the nature of temporary bar to the suit to the
complaints under section 138 of the N. I. Act, which is in the
nature of penal provision with the object to inculcate faith in
banking transactions. The term ‘suit’ under Section 69(2) of the
Act of 1932 must receive its plain and simple meaning. It
cannot be stretched for securing immunity from criminal
prosecutions. The bar under Section 69(2) of the Act of 1932 is

liable to be confined only to enforcement of contractual
obligations.

20. The larger Bench in the case of A.V. Ramanaiah
(supra) fortified its view by observing that the bar contained

under Section 69 of the Act of 1932 is intended to prevent an
unregistered partnership firm to enforce a right arising out of a
contract against a third party, and that it is not intended to
create any such bar for the purposes of enforcing rights arising
out of statutes or for invoking the protection available under
any other statute.
21. For the foregoing reasons, we are in agreement with
the view expressed by the referral Judge.
22. In such conspectus, our answer to the question
referred is as under :-
“The prosecution of an accused under Section 138 of
the Negotiable Instruments Act, 1888, is not hit by
the bar created by sub-section (2) of Section 69 of
the Indian Partnership Act, 1932.”

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH
CRIMINAL APPLICATION (APPA) NO. 748 OF 2018

Narendra Amarnathji Kalda, Vs Balbirsingh s/o Motisingh Chawhan,

CORAM : P. N. DESHMUKH &
PUSHPA V. GANEDIWALA, JJ.

DATED : 07/02/2020.
JUDGMENT : (PER PUSHPA V. GANEDIWALA, J.)
This Bench has been constituted to answer the
following question referred by the Single Bench of this Court
vide order dated 24/10/2018 :-

“Whether prosecution of accused under Section 138 of
the Negotiable Instruments Act, 1888, is hit by the bar
created by sub-section (2) of Section 69 of the Indian
Partnership Act, 1932 ?”
2. In Sai Accumulator Industries, Sangamner Vs. Sethi
Brothers, Aurangabad1, the Single Bench of this Court took a
view that the complaint filed by an unregistered firm under
Section 138 of the Negotiable Instrument Act, 1888 (in short
“N.I. Act”) is not tenable in law in view of the bar under Section
69(2) of the Indian Partnership Act, 1932 (in short “the Act of
1932”).
3. The learned referral Judge expressed a diagonally
opposite view and referred the question for consideration of the
larger Bench.
4. Heard Shri R.M. Bhangde, learned counsel for the
applicant (original complainant) and Shri V.M. Gadkari, learned
counsel for the respondent/accused.
5. Shri Bhangde, learned counsel for the applicant
took us through the relevant provisions of law and legal
pronouncements of the Hon’ble Apex Court and different High
1 2016(5) Mh.LJ 936.

Courts and submitted that almost all the High Courts are of the
view that the prosecution of the accused under Section 138 of
the N.I. Act is maintainable and is not hit by the bar created by
sub-section (2) of Section 69 of the Act of 1932.
6. Per contra, Shri Gadkari, learned counsel for the
respondent supported the view expressed by the learned Single
Judge in the case of Sai Accumulator (supra).
7. It is pointed out that the judgment in Sai
Accumulator (supra) was delivered by relying on the judgment
of the Andhra Pradesh High Court in the case of Mr. Amit Desai
& Anr. vs. M/s. Shine Enterprises and Anr.1, while the judgment
in the case of Mr. Amit Desai (supra) was already overruled by
the larger Bench of the Andhra Pradesh High Court vide
judgment given in the case of A.V. Ramanaiah vs. M. Shekhara2
on 31.12.2007. However, this fact was not brought to the notice
of the court hearing the case of Sai Accumulator (supra).
1 2000 CRI. L.J. 2386.
2 ALD(CRI) 2009 2 801.

8. In the case of Mr. Amit Desai (supra), the Division
Bench of the Andhra Pradesh High Court took a view that
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 an
unregistered firm, the bar equally applies to criminal case.
9. Disagreeing with the ratio in the case of Mr. Amit
Desai (supra), the coordinate Bench of the Andhra Pradesh High
Court referred the question for consideration of the larger
Bench. Accordingly, the larger Bench of the Andhra Pradesh
High Court in the case of A.V. Ramanaiah (supra) held that the
Division Bench in the case of Mr. Amit Desai (supra) has not laid
down a correct law. The larger Bench after discussing various
case laws on the point, came to the conclusion that the bar
contained under Section 69 of the Act of 1932 would not get
attracted for initiating action by or against an unregistered
partnership firm for the offence committed under Section 138
of the N.I. Act.

10. Before adverting to answer the question referred, it
would be fruitful to reproduce the relevant provisions and the
object in bringing these provisions in the statute books. Section
69(2) of the Act of 1932 reads thus:-
“69. Effect of non-registration.- (1) XXXX
(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.”
11. The Special Committee, which was appointed to
examine the provisions of the Bill to amend the law relating to
partnership, recommended such bar and in para 17 of its report
narrated the reasons for bringing such bar. For ready reference,
para 17 of the report of the Special Committee (see Mulla :
Partnership Act, 1st Edn., 1934, p.167, at pp.176-77) is
reproduced herein below :-
“17. The outlines of the scheme are briefly as follows.
The English precedent in so far as it makes registration
compulsory and imposes a penalty for non-registration
has not been followed, as it is considered that this step
would be too drastic for a beginning in India, and
would introduce all the difficulties connected with

small and ephemeral undertakings. Instead, it is
proposed that registration should lie entirely within
the direction of the firm or partner concerned; but,
following the English precedent, any firm which is not
registered will be unable to enforce its claims against
third parties in the civil courts; and any partner who is
not registered will be unable to enforce his claims
either against third parties or against his fellow
partners. One exception to this disability is made – any
unregistered partner in any firm, registered or
unregistered, may sue for dissolution of the firm. This
exception is made on the principle that registration is
designed primarily to protect third parties, and the
absence of registration need not prevent the
disappearance of an unregistered or imperfectly
registered firm. Under this scheme a small firm, or a
firm created for a single venture, not meeting with
difficulty in getting payment, need never register; and
even a firm with a large business need not register
until it is faced with litigation. Registration may then
be effected at any time before the suit is instituted.
The rights of third parties to sue the firm or any
partner are left intact.”
12. Section 138 of the N.I. Act reads thus:-
“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 be extended 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-
(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.”

13. The object of introducing Sections 138 to 142 of the
N.I. Act vide Amendment Act 66 of 1998 was specifically to
enhance the acceptability of cheques in settlement of liabilities
by making the drawer liable for penalties in case of bouncing of
cheques due to insufficiency of funds in the accounts or for the
reason that it exceeds the arrangement made by the drawer.
Section 138 of the N.I. Act is applicable only in case the cheque
is presented for payment within a period of six months from the
date on which it is drawn or within the period of its validity
whichever is earlier. The other conditions to constitute the
offence are :-
I) the payee should have made a demand for
payment by registered notice after the cheque is
returned unpaid; and
II) the drawer should have failed to pay the amount
demanded within 15 days of the receipt of notice.
14. Section 138 of the N.I. Act is a penal provision, the
commission of which entails prosecution and conviction on
proving of guilt. Once the offence under Section 138 of the N.I.
Act is completed, the prosecution can be initiated for bringing
the offender to penal liability.

15. In Sai Accumulator's case (supra), the learned Single
Judge took a view that for the commission of the offence
punishable under Section 138 of the N.I. Act, the amount must
be the legally enforceable debt, while an unregistered firm
could not enforce a debt against the third party due to the bar
created by Section 69(2) of the Act of 1932 and in this way, the
debt is not the legally enforceable debt.
16. There is no disagreement with the proposition that
the 'debt or other liability' as has been referred in Section 138 of
the N.I. Act, is a 'legally enforceable debt or other liability'.
However, by creating a bar to enforce a right arising out of
contract by an unregistered firm, with the object to promote
registration of the firms and to exempt the small firms from
compulsory registration, the inherent character of enforceability
of the 'right' does not get changed and it would still remain as a
right enforceable by law. Once the bar is removed, the remedy
would be revived. Moreover, even the plaintiff/unregistered
firm can withdraw the suit with liberty to file a fresh one after
getting the firm registered and section 14 of the Limitation Act,

1963 (in short “the Act of 1963”) would be applicable to such
proceedings. On the other hand, for filing a complaint under
Section 138 of the N. I. Act, it has to be filed within a period of
one month from the date on which cause of action arises. And
there is no provision in the Code of Criminal Procedure unlike
Rule 1(3) of Order 23 of the Code of Civil Procedure, to
withdraw the complaint with liberty to file it fresh after removal
of formal defect, so also, Section 14 of the Act of 1963 would
not be applicable to the complaints before the Criminal Courts
as it is applicable only to the suits or the proceedings before the
Civil Courts.
17. In this background, there is no point in stretching
the bar which is in the nature of temporary bar to the suit to the
complaints under section 138 of the N. I. Act, which is in the
nature of penal provision with the object to inculcate faith in
banking transactions. The term ‘suit’ under Section 69(2) of the
Act of 1932 must receive its plain and simple meaning. It
cannot be stretched for securing immunity from criminal
prosecutions. The bar under Section 69(2) of the Act of 1932 is

liable to be confined only to enforcement of contractual
obligations.
18. In addition to the above, when a plaint is rejected
being barred by Section 69(2) of the Act of 1932, the same shall
not preclude the plaintiff from presenting a fresh plaint in
respect of the same cause of action, in view of Order 7 Rule 13
of the Code of Civil Procedure. Similar kind of provision is
neither available in N. I. Act nor in the Code of Criminal
Procedure.
19. Furthermore, by way of simple endorsement, the
cheque can be negotiated in the name of any person or
registered firm and in this way, the effect of bar can be
neutralised by an unregistered firm and in such an eventuality,
there won't be a privity of contract between the drawer of the
cheque and its holder.
20. The larger Bench in the case of A.V. Ramanaiah
(supra) fortified its view by observing that the bar contained

under Section 69 of the Act of 1932 is intended to prevent an
unregistered partnership firm to enforce a right arising out of a
contract against a third party, and that it is not intended to
create any such bar for the purposes of enforcing rights arising
out of statutes or for invoking the protection available under
any other statute.
21. For the foregoing reasons, we are in agreement with
the view expressed by the referral Judge.
22. In such conspectus, our answer to the question
referred is as under :-
“The prosecution of an accused under Section 138 of
the Negotiable Instruments Act, 1888, is not hit by
the bar created by sub-section (2) of Section 69 of
the Indian Partnership Act, 1932.”
23. In view of the above, the matter be placed before
the appropriate Bench.
24. Before parting with the judgment, we place on
record our appreciation for Shri R.M. Bhangde, learned counsel

for the applicant and Shri V.M. Gadkari, learned counsel for the
respondent, who have ably assisted the Bench in answering this
reference.

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