Supreme Court Clarifies Maintainability Of Section 138 Of Negotiable Instruments Act, 1881 Complaints Against Partners Without Impleading The Partnership Firm

INTRODUCTION

In a recent judgment in Dhanasingh Prabhu v. Chandrasekar & Anr., 2025 INSC 831, decided on 14 July 2025, the Hon'ble Supreme Court examined whether a complaint under Section 138 of the Negotiable Instruments Act, 1881 ("NI Act") is maintainable when the partnership firm, on whose behalf the cheque was issued, is not made an accused.

FACTUAL MATRIX

The dispute arose from a loan transaction of ₹21 lakh advanced by the appellant/complainant to the respondents for the business purposes of their partnership firm, Mouriya Coirs, in which both respondents were partners.

To discharge this liability, Respondent No. 1 issued a cheque for ₹21 lakh from the partnership firm's bank account, signing it in his capacity as a partner. Upon presentation, the cheque was returned unpaid with the remark that the partnership firm's bank account had been frozen.

In compliance with Section 138 of the NI Act, the complainant issued a statutory demand notice to the respondents. Upon expiry of the statutory fifteen (15) day period, a complaint under Sections 138 and 142 of the NI Act was filed before the Judicial Magistrate against the respondents.

During the pendency of the case, the respondents approached the Hon'ble Madras High Court seeking quashing of the complaint. On February 26, 2024, the High Court allowed the petition, holding that:

The cheque had been issued on behalf of the partnership firm.
No statutory notice had been served upon the firm.
The firm had not been impleaded as an accused.

Relying on Section 141 of the NI Act, the High Court concluded that the complaint was not maintainable against the respondents alone, they being "merely" partners of the firm.

Aggrieved, the complainant appealed to the Supreme Court, contending that partners of a partnership firm can be prosecuted individually even if the firm is not separately arraigned as an accused or served with statutory notice. The respondents supported the High Court's reasoning.

QUESTION OF LAW

The central question before the Supreme Court was:

How should the expressions "company" and "director" in the Explanation to Section 141 NI Act be interpreted in relation to a partnership firm and its partners?
Specifically, is a complaint under Section 138 NI Act maintainable against the partners when the partnership firm itself has not been made an accused?

SUPREME COURT'S ANALYSIS & OBSERVATIONS

While allowing the appeal and restoring the complaint, the Supreme Court referred to and distinguished various precedents, including:

Aneeta Hada v. Godfather Travels & Tours (P) Ltd. – holding that commission of the offence by the company is a sine qua non for prosecuting its officers on the principle of vicarious liability.
Dilip Hariramani v. Bank of Baroda and G. Ramesh v. Kanike Harish Kumar Ujwal – found factually distinct from the present case.

Key Distinctions Between Partnership Firms and Companies

Separate Legal Personality – A partnership firm is not a separate legal entity; it is merely a compendious expression for its partners. In contrast, a company has a distinct legal identity separate from its shareholders.
Perpetual Succession – The identity of a partnership firm changes with a change in partners, unless otherwise agreed. A company ordinarily continues regardless of changes in shareholding.
Liability – Partners have unlimited, joint and several liability for the firm's debts and obligations. In contrast, shareholders' liability is generally limited to the value of their shares.
Ownership – Partners are co-owners of the firm's property; shareholders are not co-owners of company assets.
Name – The firm's name is merely a method of describing the individuals carrying on business together, acts done in the firm's name are as binding as if done in the partners' individual names.

Interpretation of Sections 138 and 141 of the NI Act

The inclusion of a "firm" within the meaning of "company" in Section 141 is a legal fiction created solely for imposing liability on partners.
In the case of companies, directors or officers cannot be prosecuted merely by virtue of their position—proof of consent, connivance, or negligence is required for vicarious liability.
In the case of partnership firms, there is no concept of vicarious liability in the same sense. Liability is joint and several: the firm's obligations are the partners' obligations, and vice versa.
The Court reasoned that the legislature did not intend to treat the firm and its partners as separate entities for purposes of prosecution under Section 138 of the NI Act.

Accordingly, even if the partnership firm is not named as an accused or separately served with statutory notice, the complaint is maintainable against the partners, who are deemed to have been served through notice addressed to them. The Court also permitted the impleadment of the firm as an accused at a later stage.

ANHAD LAW PERSPECTIVE

This judgment provides much needed clarity on the procedural requirements in cheque dishonour cases involving partnership firms. The Supreme Court's ruling draws a clear line between the treatment of companies and partnership firms under the NI Act.

Key takeaways:

Liability under Section 138 NI Act depends on the status of the accused and the law governing that status, whether under the Companies Act, LLP Act, Partnership Act, or other legislation, not merely on criminal law principles.
Prior to this ruling, several High Courts, relying on Aneeta Hada, had quashed complaints where the firm was neither impleaded nor served with notice. This decision removes that procedural hurdle in partnership cases.
The ruling prevents acquittals on purely technical grounds and ensures that liability is decided on substantive merits.
It strengthens the position of financial and operational creditors in transactions with partnership firms, making it harder for defaulting partners to escape liability.
It is aligned with India's broader objective of improving the ease of doing business by ensuring fair and effective enforcement of commercial obligations.

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