Dhanasingh Prabhu V. Chandrashekhar & Another, 2025 INSC 831

Court : Supreme Court of India

Bench :  B.V. Nagarathna J, Satish Chandra Sharma

Date of Judgment : July 14, 2025

Relevant Provisions/Statutes :   

1. Section 138, 141, 142 of Negotiable Instruments Act 1881.
2. Section 4, 25, 26, 42 of Indian Partnership Act, 1932.
3. Section 482 of Code of Criminal Procedure, (CrPC) 1973 /Section 223 of Bharatiya Nagarik Suraksha Sanhita, (BNSS) 2023.
4. Section 9 of The Companies act, 2013
5. Order XXX Rules 1 & 2 of Code of Civil Procedure, (CPC)  1909
6.  Section 239 of Indian Contract Act, 1982. (Repealed)

Brief facts of the case :

This case primarily involved private complaint with regard to section 138 of Negotiable Instruments Act 1881. The complainant named Dhanasingh Prabhu has advanced Rs 21,00,000 to a partnership firm named Mouriya Coirs, which was operated by the Respondents who were the partners of the said firm.

For repayment of the said sum, a cheque was issued from the partnership firm’s bank account, which was signed by one of its partners. When the complainant has presented the cheque, it was dishonoured on the ground that the issuer’s account was frozen. The complainant has issued statutory notice under section 138 of NI act demanding legally enforceable debt within fifteen days only to the Partners and not to the Partnership firm itself. Subsequently he filed a Private Complaint  under section 138 of NI Act  naming only the Partners as accused for the offences U/S 138 of NI act read with Section 142 of the act instead of suing the Partnership Firm itself.

During the pendency of the complaint, the  respondents approached the High Court U/s 483 of CrPC to quash the complaint against them in the Trail Court. The High Court has allowed the petition and quashed the complaint by an order on the ground that, No statutory notice was issued to the partnership firm and it was not arraigned as accused, hence the complainant has not complied with the rigors of Section 141 of NI act. Being aggrieved from the order of  High Court, the complainant has appealed to the Supreme Court.

ISSUES INVOLVED :

Issues framed by the Court :

1. Whether the High Court was right in dismissing the complaint on the ground that the name of the partnership firm was not mentioned in the statutory notice issued by the appellant / complainant to the respondents under Section 138 of NI Act and was also not arraigned as an accused in the complaint filed by the appellant/complainant?
2. What final order or relief should be granted based on the determination of the first issue?

CONTEXTUAL LEGAL ISSUES :

1. How do the definitions of company and director in Explanation to Section 141 apply to the partners of a partnership firm?
2. Whether the partners of Partnership firm are vicariously liable OR jointly and severally liable for a firm’s dishonored cheque.
3. What are the differences between a registered company and a partnership firm in the context of criminal prosecution?

Arguments :

Appellant’s Arguments :

1. The counsel for appellant submitted arguments highlighting the differences between company and partnership firm stated that, unlike a company, which is a separate legal entity from its shareholders, a partnership is merely a compendious/collective name for its partners.
2. it was submitted that, partners are jointly and severally liable for the losses of the partnership firm and they have unlimited liability over such accounts, whereas in a company, shareholders have limited liability.
3. It was further submitted that, a partnership firm cannot enter into a contract on its own and the contracts with regard to firms must be executed either by all the partners or by those authorized by all partners. It is subject to partnership agreement that, a firm is made party to a contract only at the time of execution in order to make all partners and the firm jointly and severally liable.
4. With regard to Order XXX Rules 1 & 2 of CPC, it was submitted that the said provision is only a convenient method for referring to the persons who constitute the firm at the time of accruing of cause of action. The decree whether in favor or against the firm, in the name of the firm, has the same effect as a decree in favor or against its partners.
5. It was submitted about the key differences between a company or Limited Liability Partnership and an ordinary partnership firm, highlighting an ordinary partnership is not a juristic person than the partners themselves, as the partners participate in agreement in their individual capacities because the firm has no separate legal existence.

Respondent’s arguments :

1. The respondents argued that under section 141 of the NI act, the term company is defined and it has included a firm or other association of individuals. By virtue of this legal friction a partnership firm must be treated as a “company” for the purposes of prosecution under the NI act.
2. It was also submitted that, Explanation B to section 141 defines a “director” in relation to a firm as a “partner in the firm” to strengthen the argument that firm is the primary entity.
3. It was argued that if a firm commits an offence U/s 138, the firm itself be added as accused and found guilty.
4. It was also argued that, partners can only be vicariously held liable for the offences committed by the firm, therefore commission of offence by the firm is a “Condition precedent” to attract liability of its partners.
5. The respondents relied heavily on Aneeta Hada v. Godfather Travels & Tours which held that a company must be impleaded as accused for its directors to be prosecuted vicariously. They have also cited Dilip Hariramani v. Bank of Baroda where partner’s conviction was set aside because the partnership firm was not made an accused.

Based on all these contentions, it was argued by the counsel for respondents that by the absence of firm being issued statutory notice and not arraigned as accused, partners could not be held liable individually because the firm which issued the cheque was not a party to the legal proceeding.

Judgment :

The Supreme Court of India has sets aside the order of High Court and held that complaint was maintainable because the notice to the partners is treated as notice to the partnership firm based on the reasoning that the term “Partnership firm” is the collective term for its partners.

The court emphasized that, unlike a company which has a separate entity and directors are vicariously liable, a partnership firm is not a independent legal persona it is merely a collective name for its partners. The partners have the joint and several liability and the debt of firm is close to their personal debt based on the nature of partnerships. Even though section 141 treats a firm as “Company” for prosecution, this deeming fiction does not override fundamental nature of partnerships.

Distinguishing Aneeta Hada V. Godfather Travels & Tours Pvt. Ltd., the court held that strict requirement of arraignment of company does not apply AS-IS to a normal partnership firms.

Ratio Decidendi :

The prosecution U/s 138 and 141 of NI Act involving partnership firms, arraignment of partnership firms as accused or issuance of statutory notice to the firm itself is not mandatory if the notice has been duly served to the partners and they are arraigned as accused.

Obiter Dictum :

1. the court has observed that, the inclusion of firm under section 141 with company is only a fiction for prosecution and it does not change the real nature of partnership.
2. It clearly explained that, company has a separate legal entity and vicarious liability and ordinary partnership firm has no such separate legal entity and partners are jointly and severally liable.
3. The court has also emphasized that, failure to arraign partnership firm is a curable defect via amendment and not fatal as to cross the boundary of maintainability and these technical lapses and defects should not defeat the ends of justice in the dishonors of negotiable instruments.

Final decision :

The Supreme Court of India sets aside Madras High Court order and held that a cheque bounce complaint against partners of a firm is maintainable even though the firm was not initially arraigned as accused nor received statutory notice in its name.

REFERENCES:-

1. Dhanasingh Prabhu v V Chandrashekhar (2025) 2025 INSC 831 (SC).
2. Aneeta Hada v Godfather Travels & Tours Pvt Ltd (2012) 5 SCC 661 (SC).
3. Dilip Hariramani v Bank of Baroda (2022) 2 SCC 331 (SC).
4. Negotiable Instruments Act 1881, ss 138, 141, 142.
5. Indian Partnership Act 1932, ss 4, 25, 26, 42.
6. Code of Criminal Procedure 1973, s 482.
7. Bharatiya Nagarik Suraksha Sanhita 2023, s 223.
8. Companies Act 2013, s 9.
9. Code of Civil Procedure 1908, O 30 rr 1–2.
10. Indian Contract Act 1872, s 239 (repealed).