# Dhanasingh Prabhu v. Chandrasekar & Another

- **Citation:** 2025 INSC 831
- **Court:** Supreme Court of India
- **Decided:** 2025-07-14
- **Case number:** Criminal Appeal No. 2994 of 2025
- **Bench:** B.V. Nagarathna, Satish Chandra Sharma
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/dhanasingh-prabhu-v-chandrasekar-another-38577
- **Pages:** 38

## Headnote

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 u/s.138 of the Negotiable Instruments Act, 1881 and
was also not arraigned as an accused in the complaint filed by
the appellant/complainant.
Headnotes†
Negotiable Instrument Act, 1881 - ss.138, 141 - Partnership Act,
1932 - Appellant-complainant advanced a loan of Rs.21,00,000/-
to the respondent nos.1 and 2 (a partneship firm) for business
purposes - In order to discharge debt, a cheque was issued in
the name of the partneship firm signed by respondent no.1 -
Cheque was returned as dishonoured - Appellant-complainant
issued a statutory notice to the respondents - Thereafter,
the appellant-complainant filed a complaint before the trial
Court - Respondents filed petition u/s.482 CrPC for quashing
of complaint - The High Court quashed the complaint on
the ground that while the cheque was issued on behalf of
the partnership firm, no statutory notice was issued to the
partnership firm and it was also not arraigned as an accused
in the complaint - According to the High Court, the rigours
of s.141 of the Act were not complied with - Correctness:
Held: 1. The High Court was not right in rejecting or dismissing the
complaint for the reason that the partnership firm was not arraigned
as an accused in the complaint or that notice had not been issued
to it u/s.138 of the Act - The notice issued to the partners of the
firm in the instant case shall be construed to be a notice issued to
the partnership firm - The complainant herein has not arraigned
* Author
656
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the firm but has arraigned the partners of the firm as accused
and has also issued notice to them; therefore, the defect, if any,
is not significant or incurable in these circumstances - Permission
is granted to arraign the partnership firm as an accused in the
complaint. [Paras 10, 6.10]
2. A partnership firm, unlike a company registered under the Indian
Companies Act or a limited liability partnership registered under the
Limited Liability Partnership Act, 2008, is not a distinct legal entity
and is only a compendium of its partners - Even the registration
of a firm does not mean that it becomes a distinct legal entity like
a company - The firm name is a convenient method of describing
a group of persons associated together in business at a certain
point of time: no more or no less - While a director is a separate
persona in relation to a company, in the case of a partnership firm,
the partner is not really a distinct legal persona - This is because a
partnership firm is not really a legal entity separate and distinct as
a company is from its directors but can have a legal persona only
when the partnership firm is considered along with its partners -
Thus, the partnership firm has no separate recognition either
jurisprudentially or in law apart from its partners - The partners
of the firm are liable for the dishonour of a cheque, even though
the cheque may have been issued in the name of the firm and
the offence is committed by the firm - If a partnership firm is liable
for the offence u/s.138 of the Act, it would imply that the liability
would automatically extend to the partners of the partnership firm
jointly and severally. [Paras 8, 8.2, 9.7, 9.8]
Partnership Act, 1932 - s.4 - Companies Act, 2013 - s.2(2)
s.9 - Difference between a partnership firm and a company -
Discussed.
Partnership Act, 1932 - Companies Act, 1956 or 2013 -
A Partnership firm may not be a legal entity in the sense of
a corporation or a company:
Held: A firm is not an entity of persons in law but is merely an
association of individuals and firm name is only a collective name
of those individuals who constitute the firm - In other words, the
firm name is merely an expression, only a compendious mode of
designating the persons who have agreed to carry on business

## Text

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[2025] 7 S.C.R. 655 : 2025 INSC 831
Dhanasingh Prabhu
v.
Chandrasekar & Another
(Criminal Appeal No. 2994 of 2025)
14 July 2025
[B.V. Nagarathna* and Satish Chandra Sharma, JJ.]
Issue for Consideration
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 u/s.138 of the Negotiable Instruments Act, 1881 and
was also not arraigned as an accused in the complaint filed by
the appellant/complainant.
Headnotes†
Negotiable Instrument Act, 1881 - ss.138, 141 - Partnership Act,
1932 - Appellant-complainant advanced a loan of Rs.21,00,000/-
to the respondent nos.1 and 2 (a partneship firm) for business
purposes - In order to discharge debt, a cheque was issued in
the name of the partneship firm signed by respondent no.1 -
Cheque was returned as dishonoured - Appellant-complainant
issued a statutory notice to the respondents - Thereafter,
the appellant-complainant filed a complaint before the trial
Court - Respondents filed petition u/s.482 CrPC for quashing
of complaint - The High Court quashed the complaint on
the ground that while the cheque was issued on behalf of
the partnership firm, no statutory notice was issued to the
partnership firm and it was also not arraigned as an accused
in the complaint - According to the High Court, the rigours
of s.141 of the Act were not complied with - Correctness:
Held: 1. The High Court was not right in rejecting or dismissing the
complaint for the reason that the partnership firm was not arraigned
as an accused in the complaint or that notice had not been issued
to it u/s.138 of the Act - The notice issued to the partners of the
firm in the instant case shall be construed to be a notice issued to
the partnership firm - The complainant herein has not arraigned
* Author
656
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the firm but has arraigned the partners of the firm as accused
and has also issued notice to them; therefore, the defect, if any,
is not significant or incurable in these circumstances - Permission
is granted to arraign the partnership firm as an accused in the
complaint. [Paras 10, 6.10]
2. A partnership firm, unlike a company registered under the Indian
Companies Act or a limited liability partnership registered under the
Limited Liability Partnership Act, 2008, is not a distinct legal entity
and is only a compendium of its partners - Even the registration
of a firm does not mean that it becomes a distinct legal entity like
a company - The firm name is a convenient method of describing
a group of persons associated together in business at a certain
point of time: no more or no less - While a director is a separate
persona in relation to a company, in the case of a partnership firm,
the partner is not really a distinct legal persona - This is because a
partnership firm is not really a legal entity separate and distinct as
a company is from its directors but can have a legal persona only
when the partnership firm is considered along with its partners -
Thus, the partnership firm has no separate recognition either
jurisprudentially or in law apart from its partners - The partners
of the firm are liable for the dishonour of a cheque, even though
the cheque may have been issued in the name of the firm and
the offence is committed by the firm - If a partnership firm is liable
for the offence u/s.138 of the Act, it would imply that the liability
would automatically extend to the partners of the partnership firm
jointly and severally. [Paras 8, 8.2, 9.7, 9.8]
Partnership Act, 1932 - s.4 - Companies Act, 2013 - s.2(2)
s.9 - Difference between a partnership firm and a company -
Discussed.
Partnership Act, 1932 - Companies Act, 1956 or 2013 -
A Partnership firm may not be a legal entity in the sense of
a corporation or a company:
Held: A firm is not an entity of persons in law but is merely an
association of individuals and firm name is only a collective name
of those individuals who constitute the firm - In other words, the
firm name is merely an expression, only a compendious mode of
designating the persons who have agreed to carry on business in
partnership - Thus, a firm may not be a legal entity in the sense
of a corporation or a company incorporated under the Companies
[2025] 7 S.C.R.
657
Dhanasingh Prabhu v. Chandrasekar & Another
Act, 1956 or 2013, but it is still an existing concern where business
is done by a number of persons in partnership. [Para 7.6]
Partnership Act, 1932 - Partnership Firm - Whether a Separate
Legal Personality:
Held: A partnership firm, unlike a company registered under the
Companies Act, does not possess a separate legal personality and
the firm's name is only a compendious reference for describing
its partners - This fundamental distinction between a firm and a
company rests on the premise that the company is separate from
its shareholders. [Para 7.9]
Partnership Act, 1932 - Partnership firm - Liability of Partners:
Held: The partners of a firm have unlimited liability to the creditors
of the firm - This is as opposed to a limited company or a limited
liability partnership, wherein the liability of the directors or the
shareholders is to the extent of their share in the limited company
or limited liability partnership and limited to the nominal value
of the shares held by them or the amount guaranteed by the
shareholder when it comes to a company - Thus, the debt of the
firm is the personal debt of a partner and the debt of the firm has
to be incurred by each partner as a financial personal liability -
Insofar as criminal liability is concerned, once it is established
that an illegal act has been committed by the firm or its partners,
then the partners will be jointly liable for it [Paras 7.20 and 7.21]
Negotiable Instrument Act, 1881 - s.141 - Partnership Act,
1932 - Companies Act, 1956 or 2013 - Whether the expression
"director" in sub-section (2) of Section 141 is restricted to a
director of an incorporated company or a statutory body or
whether it also includes a partner of a firm:
Held: On a conjoint reading of the various clauses of Section 141,
what emerges is that the expression "company" has been used
in an expansive way to include not just a company incorporated
under the provisions of the Companies Act stricto sensu but also
any body corporate such as a statutory company as well as other
artificial juristic entity such as a partnership firm or other association
of individuals - Hence, the expression "director" in sub-section (2) of
Section 141 is not restricted to a director of an incorporated company
or a statutory body, but also includes a partner of a firm - The
658
[2025] 7 S.C.R.
Supreme Court Reports
expression "director" in sub-section (2) of Section 141 of the Act in
relation to a firm means a partner, which is also a legislative device
adopted by the Parliament knowing fully well and being conscious
of the fact that a partnership firm, jurisprudentially speaking, does
not stand on par with a director of a body corporate - Since the
Parliament has used the expression "company" encompassing all
types of juristic persons, it was necessary to give an expanded
definition to the expression "director" in relation to a firm to mean
a partner in the firm - Therefore, the inclusion of a firm within the
meaning of the expression "company" is by a legal fiction and
by way of a legislative device only for the purpose of creating a
liability on the partners of the firm, which in any case, they are
liable under the law of partnership in India. [Para 9.6]
Negotiable Instrument Act, 1881 - ss.138 and 141 - When
offence is committed by the company and when the offence
is committed by a Partnership firm:
Held: When it is a case of an offence committed by a company
which is a body corporate stricto sensu, the vicarious liability
on the categories of persons mentioned in sub-section (1) and
sub-section (2) of Section 141 of the Act accordingly would be
proceeded against and liable for the offence under Section 138
of the Act - In the case of a partnership firm on the other hand,
when the offence has been proved against a partnership firm, the
firm per se would not be liable, but liability would inevitably extend
to the partners of the firm inasmuch as they would be personally,
jointly and severally liable with the firm even when the offence is
committed in the name of the partnership firm. [Para 9.10]
Case Law Cited
Bacha F. Guzdar v. CIT [1955] 1 SCR 876 : (1954) 2 SCC 563;
CIT v. R.M. Chidambaram Pillai [1977] 2 SCR 111 : (1977) 1 SCC
431 - relied on.
Aneeta Hada v. Godfather Travels & Tours (P) Ltd. [2012] 5 SCR
503 : (2012) 5 SCC 661 - held inapplicable.
State of Madras v. C.V. Parekh (1970) 3 SCC 491; Sheoratan
Agarwal v. State of M.P. [1985] 1 SCR 719 : (1984) 4 SCC 352;
Anil Hada v. Indian Acrylic Ltd. [1999] Supp. 5 SCR 6 : (2000)
1 SCC 1; U.P. Pollution Control Board v. Modi Distillery [1987] 3
SCR 798 : (1987) 3 SCC 684; Regional Director, Employees' State
[2025] 7 S.C.R.
659
Dhanasingh Prabhu v. Chandrasekar & Another
Insurance Corporation v. Ramanuja Match Industries [1985] 2 SCR
119 : (1985) 1 SCC 218, Paras 4 and 9; Dena Bank v. Bikhabhai
Prabhudas Parekh and Co. [2000] 3 SCR 509 : (2000) 5 SCC 694;
G. Ramesh v. Kanike Harish Kumar Ujwal [2019] 5 SCR 751 :
(2020) 17 SCC 239; Dilip Hariramani v. Bank of Baroda [2022] 4
SCR 615 : 2022 SCC OnLine SC 579; Dulichand Laksminarayan v.
CIT [1956] 1 SCR 154 : AIR 1956 SC 354 - referred to.
Bhagwanji Morarji Goculdas v. Alembic Chemical Works Company
Ltd., AIR 1948 PC 100 - referred to.
Re: The Kondoli Tea Co. Ltd. (1886) ILR 13 Cal 43 - referred to.
Salomon v. Salomon & Co. Ltd. [1897] AC 22 (HL) - referred to.
Books and Periodicals Cited
N. Lindley, Lindley on Partnership (12th ed, Sweet & Maxwell,
2007); Chapter 2, Pollock & Mulla, The Indian Partnership Act,
8th Edn. Lexis Nexis Butterworths.
List of Acts
Negotiable Instrument Act, 1881; Companies Act, 1956; Companies
Act, 2013; Contract Act, 1872; Limited Liability Partnership Act,
2008; Bharatiya Nagarik Suraksha Sanhita, 2023; Code of Criminal
Procedure, 1973; Partnership Act, 1932; Code of Civil Procedure,
1908.
List of Keywords
Partnership firm; Name of Partnership firm; Partnership firm not
arraigned as an accused; Discharge of debt; Dishonour of cheque;
Liability of Partners; Criminal liability of partners; Section 138
of Negotiable Instrument Act, 1881; Section 141 of Negotiable
Instrument Act, 1881; Difference between a partnership firm and a
company; Separate legal entity; Offence committed by partnership
firm; Separate Legal Personality; Personally liable; Jointly and
severally liable.
Case Arising From
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.
2994 of 2025
From the Judgment and Order dated 26.02.2024 of the High Court
of Judicature at Madras in CRLOP No. 1533 of 2024
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Appearances for Parties
Advs. for the Appellant:
C.B. Gururaj, Vishnu Unnikrishnan, Sabarish Subramanian.
Advs. for the Respondents:
S. Nagamuthu, Sr. Adv., M.P. Parthiban, Bilal Mansoor, Shreyas
Kaushal, S. Geyolin Selvam, Alagiri K, P.V.K. Deivendran.
Judgment / Order of the Supreme Court
Judgment
Nagarathna, J.
Leave granted.
Factual Background:
2.
Appellant has preferred the present criminal appeal being aggrieved
by the final judgment and order of the Madras High Court dated
26.02.2024, whereby the High Court allowed the Criminal Original
Petition No.1533/2024 preferred by the respondents-accused and
thereby quashed Complaint bearing STC No.1106/2022 filed by
the appellant-complainant under Section 138 of the Negotiable
Instruments Act, 1881 (hereinafter "the Act", for the sake of brevity)
against the respondents.
2.1 By virtue of a partnership deed, respondent Nos.1 and 2
are partners in the partnership firm 'Mouriya Coirs' and are
engaged in manufacturing and allied activities of coir products
in Periyamamarthupatti, Thenkumarapalayam Post, Pollachi,
Tamil Nadu.
2.2 From March 2019 to August 2019, the appellant, through banking
channels as well as by cash, advanced a loan of Rs.21,00,000/-
(Rupees Twenty-One Lakhs) to the respondents for business
purposes. In order to discharge the debt, on 01.02.2021,
respondent No.1-accused issued Cheque No.802077 for Rs.
21,00,000/-(Rupees Twenty-one Lakhs) in favour of the appellantcomplainant from Account No.4393002100113025 maintained
at Punjab National Bank, New Scheme Road, Pollachi, in the
name of the partnership firm. Notably, the cheque issued in the
[2025] 7 S.C.R.
661
Dhanasingh Prabhu v. Chandrasekar & Another
name of the firm was signed only by respondent No.1. However,
upon presentation of the said cheque on 02.02.2021, it was
returned as dishonoured vide cheque return memo by noting
that the partnership firm's account has been frozen.
2.3 As required under Section 138 of the Act, the appellantcomplainant issued a statutory notice to the respondents on
01.03.2021 demanding discharge of the legally enforceable debt
within fifteen days. Subsequently on 23.04.2021, the appellantcomplainant filed complaint bearing STC No. 1106/2022 before
the Court of the Judicial Magistrate No.II, Pollachi (hereinafter
"trial Court") contending that the respondents have committed
offences under Section 138 read with Section 142 of the Act.
2.4 Our attention has been drawn to the uncontested fact that neither
was the statutory notice issued to the partnership firm nor was
the firm arraigned as an accused in the complaint. Instead,
the statutory notice and the complaint mentioned the names
of both the respondents who are the partners to the said firm.
2.5 During the pendency of the complaint, the respondents preferred
Criminal Original Petition being Crl. O.P. No 1533/2024 under
Section 482 of the Code of Criminal Procedure, 1973 (hereinafter
"CrPC") before the High Court to quash the complaint in STC
No. 1106 of 2022 pending on the file of the trial Court. By the
impugned order dated 26.02.2024, the High Court allowed the
Criminal Original Petition and proceeded to quash the complaint
in STC No. 1106 of 2022 on the ground that while the cheque
was issued on behalf of the partnership firm, no statutory notice
was issued to the partnership firm and it was also not arraigned
as an accused in the complaint. Therefore, according to the
High Court, as the rigours of Section 141 of the Act were not
complied with, the complaint was not maintainable as against
both the respondents, who were merely partners in the firm.
Hence, the complaint was quashed.
2.6 Being aggrieved, the appellant/complainant has preferred this
appeal.
Submissions:
3.
Learned counsel for the appellant made the following submissions to
differentiate a partnership firm from other entities with limited liability,
662
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such as a company, to support his contention that the partners of
a partnership firm are liable to be prosecuted individually sans the
partnership firm being arraigned as an accused or being issued notice
under Section 138 of the Act or as required under Section 141 of
the Act, in the following manner:
(i)
Firstly, he submitted that unlike a company which is a separate
legal entity from its shareholders, a partnership is only a
compendious name for its partners. That the partners are jointly
and severally liable for the profit and loss of the partnership firm
and further, in a company, its shareholders have limited liability,
whereas in a partnership firm, the partners have unlimited liability.
(ii)
Secondly, under Section 42 of the Partnership Act, 1932
('Partnership Act' for short), subject to contract between the
partners, a partnership firm gets dissolved on events specified
in sub-sections (a) to (d) of Section 42.
(iii) Thirdly, a partnership firm cannot on its own create or enter
into any contract and that either those partner(s) authorized
by all the partners or all the partners of the firm, must execute
the contract. Further, subject to the partnership agreement, a
partnership firm is made party to a contract only at the time of
execution in order to make all the partners and the firm jointly
and severally liable to the contract.
(iv) Fourthly, though Order XXX Rules 1 and 2 of the Code of Civil
Procedure, 1908 (hereinafter "CPC") allow for suing of partners
in the name of the firm, it is only a convenient method for
referring to the persons who constitute the firm at the time of
the accruing of the cause of action and that a decree in favour
of or against a firm, in the name of the firm, has the same effect
as a decree in favour of or against all the partners.
(v)
Fifthly, unlike a limited liability partnership or a company,
an ordinary partnership is not a juristic person as such, and
that the real legal entity is the partners themselves. That in
an agreement involving a partnership firm, all partners in
their individual capacity ought to additionally be part of such
agreement as parties and execute it in their individual capacity.
This is because a partnership firm has no separate legal
existence of its own.
[2025] 7 S.C.R.
663
Dhanasingh Prabhu v. Chandrasekar & Another
3.1 On the above premise, learned counsel for the appellant sought
for setting aside of the impugned order and restoration of the
complaint on the file of the court of the learned Magistrate.
4.
On the other hand, learned senior counsel for the respondents, Sri
S. Nagamuthu submitted that Section 141(1) of the Act does not
define the expression 'company', but Explanation (a) states that a
"company" means any body corporate and includes a firm or other
association of individuals. He submitted that the terms 'association
of persons' or 'body of individuals' have a legal connotation and
concern an entity having certain defined rights and duties as opposed
to a group of persons or body of individuals in the literal sense. In
this regard, the learned senior counsel submitted that a partnership
firm is not an association of persons in the literal sense. He referred
to Section 4 of the Partnership Act which defines the expression
'partnership' and the terms 'partners', 'firm', and 'firm name' to submit
that the expression 'company' in section 141 of the Act includes a
partnership firm by a legal fiction.
4.1 Learned senior counsel, Sri Nagamuthu, then referred to the
expression 'person' in Section 141 of the Act and submitted that
the said expression includes a company as well as a natural
person. Extending the above argument, he submitted that the
expression 'person' would also include a partnership firm, as
Section 141 of the Act deems a partnership firm to be a company.
That this deeming fiction is also evident in Explanation (b) to
Section 141 of the Act, which defines the expression "director",
in relation to a firm, to mean a partner in the firm.
4.2 In view of the above arguments, learned senior counsel
submitted that a firm is deemed to be a company and if a firm
commits an offence under Section 138 of the Act, that firm
should also be added as an accused and found guilty. Further,
the partners of a firm should be arraigned as accused along
with the firm and such partners should be liable for punishment
vicariously/constructively for the offence committed by the firm.
4.3 Learned senior counsel contended that in the absence of the firm
being issued the statutory notice or arraigned as an accused in
the complaint, the same was not maintainable at all. Therefore,
the High Court rightly quashed the complaint and there is no
merit in this appeal.
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Points for consideration:
5.
On hearing the learned counsel for the appellant and the learned
senior counsel for the respondent, the points that arise for our
consideration revolve around the interpretation of the expressions,
company and director in the Explanation to Section 141 of the Act
in the context of the partners of a partnership firm. In other words,
the questions are:
(i)
"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 the Act and was also not arraigned as
an accused in the complaint filed by the appellant /
complainant?
(ii)
What order?"
6.
Before we proceed further, it is necessary to refer to the judgments
in the following cases cited by the learned senior counsel, Sri S.
Nagamuthu:
6.1 Aneeta Hada vs. Godfather Travels & Tours (P) Ltd., (2012)
5 SCC 661 ("Aneeta Hada") is a judgment of a three Judge
Bench of this Court wherein the core question considered was,
whether, in view of Section 141 of the Act, a company could have
been made liable for prosecution without being impleaded as an
accused, and whether a director of a company could have been
prosecuted for offences punishable under the provisions of the
Act without the company being arraigned as an accused. It is in
the aforesaid context that after referring to several judgments of
this Court, it was observed that the commission of an offence
by a company is an express condition precedent to attract the
vicarious liability of others such as directors or employees of a
company. Thus, the words "as well as the company" appearing
in the Section make it absolutely clear that when the company
could be prosecuted then only the persons mentioned in the
other categories could be vicariously liable for the offence
subject to the averments in the petition and proof thereof. This
is because a company is a separate juristic person and thus
the imperative for arraigning the company as an accused for
maintaining the prosecution under Section 141 of the Act. It was
[2025] 7 S.C.R.
665
Dhanasingh Prabhu v. Chandrasekar & Another
therefore held that it is only when the company is held to be
guilty of the offence under Section 138 read with Section 141
of the Act that the other categories of offenders could also be
proceeded against on the touchstone of the principle of vicarious
liability as the same has been mandated by Section 141 of
the Act itself. It is necessary to note that the company in the
aforesaid case was a private limited company incorporated
under the provisions of the Companies Act, 1956.
6.2 In the said case, the three Judge Bench followed the ratio of the
judgment in State of Madras vs. C.V. Parekh, (1970) 3 SCC
491 and opined that the judgment in Sheoratan Agarwal vs.
State of M.P., (1984) 4 SCC 352 did not lay down the correct
law and was therefore overruled. It was further observed that
the decision of this Court in Anil Hada vs. Indian Acrylic
Ltd., (2000) 1 SCC 1 was also not the correct law insofar as it
stated that the director or any other officer of a company can be
prosecuted without impleadment of the company. It was further
observed that the judgment of this Court in U.P. Pollution Control
Board vs. Modi Distillery, (1987) 3 SCC 684 was also restricted
to its own facts. In our view, the aforesaid decisions are not
applicable to the present case inasmuch as the said decisions
concerned the vicarious liability of the directors of a company
when the company itself was not prosecuted against or made
liable. We say so for the reason that the distinction between a
company and a partnership firm has to be borne in mind while
approaching these cases. Hence, the judgment of this Court
in Aneeta Hada is of no assistance to the respondent herein.
6.3 In Dilip Hariramani vs. Bank of Baroda, 2022 SCC OnLine
SC 579 ("Dilip Hariramani"), the issues raised were (i)
whether the appellant therein, being a non-signatory to the
dishonoured cheque, could have been convicted under Section
138 read with Section 141 of the Act on the basis that there
was vicarious criminal liability of a partner; and (ii) whether the
partner could be convicted and held to be vicariously liable when
the partnership firm was not made an accused and therefore
not tried for a primary or substantive offence. The facts of the
case are necessary to be discussed inasmuch as in this case
the respondent-Bank of Baroda had granted term loan on cash
credit facility to a partnership firm- M/s Global Packaging and
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Supreme Court Reports
the repayment of the loan by the firm was through its authorized
signatory who had issued three cheques which were dishonoured
on presentation due to insufficient funds. A demand notice
was issued to the authorized signatory under Section 138 of
the Act by the bank which later filed the complaint against the
authorized signatory as well as the appellant therein but the
firm was not made an accused. The authorized signatory of the
cheques of the appellant therein was shown as a partner of the
firm. It was contended that there was no assertion or statement
in the complaint made to establish the vicarious liability of the
appellant therein. Both the accused were convicted by the trial
court and sentenced to imprisonment for six months and asked
to pay compensation under Section 357 (3) of the CrPC and
in default to suffer additional imprisonment for one month. The
appeal preferred before the District and Sessions Court was
allowed in part by reducing the sentence till the rising of the
court and enhancing the compensation amount to Rs. One
Crore Twenty Lakhs with the stipulation that both the accused
would suffer additional imprisonment of three months in case
of failure to pay. The accused challenged the judgment before
the Chhattisgarh High Court which dismissed the appeal and
hence the appeal was preferred before this Court. This Court
noted the following facts in the said case:
i.
The Demand Notice issued on 04.11.2015 by the bank
through its Bank Manager was served solely to the
authorized signatory of the firm.
ii.
The complaint dated 07.12.2015 under Section 138 of the
Act was made against the authorized signatory as well as
the appellant therein.
iii.
The partnership firm was not made an accused or ever
summoned to be tried for the offence.
6.4 After referring to Aneeta Hada, this Court considered Section
141 of the Act which imposes vicarious liability by a deeming
fiction which presupposes and requires the commission of the
offence by the company or firm. It was observed thus:
"14. ... unless the company or firm has committed
the offence as a principal accused, the person
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Dhanasingh Prabhu v. Chandrasekar & Another
mentioned in sub-section (1) or (2) would not be liable
and convicted as vicariously liable. Section 141 of
the Act extends vicarious criminal liability to officers
associated with the company or firm when the one
of the twin requirements of Section 141 has been
satisfied, which person(s) then, by deeming fiction,
is made vicariously liable and punished. However,
such vicarious liability arises only when the company
or firm commit the offence as a primary offender".
(underlining by us)
In the above context, the appeal was allowed and the conviction
of the appellant therein was set aside.
6.5 The reason as to why relief was granted by this Court in
Dilip Hariramani was because it was observed that the
partnership firm was not said to have committed the offence and
was not made the principal accused. In such a circumstance,
there could be no vicarious criminal liability to the officers
associated with the company or firm. It is necessary to note
that the complainant bank in the aforesaid case had not served
the notice to the appellant therein but it was served only on the
authorized signatory of the firm. Hence, relief was granted by
this Court to the appellant therein. On the other hand, in the
instant case, the notice was sent by the complainant to both
the partners of the firm.
6.6 We are of the view that having regard to the distinct facts in the
aforesaid case, relief was granted by this Court but the present
case cannot be decided on the basis of the aforesaid judgment.
The three significant facts noted in the aforesaid judgment must
be contrasted with the facts which arise in the present case,
which are as under:
i.
Notice of the complainant was not issued only to one
partner or only to the authorized signatory of the partnership
firm. It was issued to both partners in the present case.
ii.
The cheque was issued in the name of partnership firm
"Mouriya Coirs". However both the partners were issued
notice by the complainant which was not so in the aforesaid
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case, although the partnership firm was not issued any
statutory notice.
iii.
The complaint has been made against both the partners
even though the firm has not been made an accused in
the complaint in the instant case.
6.7 In fact, in an earlier judgement G. Ramesh vs. Kanike Harish
Kumar Ujwal, (2020) 17 SCC 239 which is also a judgment
of a two Judge Bench of this Court, it was noted from the
complaint considered in the said case that the same contained
a sufficient description of (i) nature of the partnership; (ii) the
business which was being carried out; and (iii) role of each of
the accused in the conduct of the business and specifically in
relation to the transaction which took place with the complainant.
In the averments, the accused had been referred to in the
plural sense. This Court observed that Section 141 uses the
expression "company" so as to include a firm or association
of a persons. That the first accused in the said case was a
partnership firm of which the remaining two accused were the
partners which fact had been missed by the High Court and
therefore the appeal was allowed.
Paragraphs 11 and 12 of the judgment read as under:
"11. In terms of the explanation to Section 141, the
expression "company" has been defined to mean
any body corporate and to include a firm or other
association of individuals. Sub-section (1) of Section
141 postulates that where an offence is committed
under Section 138 by a company, the company as
well as every person who, at the time when the
offence was committed, was in charge of and was
responsible to the company for the conduct of the
business shall be deemed to be guilty of the offence.
12. In determining as to whether the requirements of
the above provision have been fulfilled, it is necessary
to bear in mind the principle of law that a partnership
is a compendious expression to denote the partners
who comprise of the firm. By the deeming fiction in
Explanation (a) the expression company is defined
to include a firm."
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Dhanasingh Prabhu v. Chandrasekar & Another
6.8 While holding that Section 141 is a deeming provision, it was
also observed that a partnership is a compendious expression to
denote the partners who comprise the firm which means that a
firm without a reference to its partners has no juristic identity in
law. By a deeming fiction, in Explanation (a) to Section 141, the
expression "company" has been defined to include a firm. Since
the High Court had lost sight of the fact that a partnership firm
has to be read within the meaning of Section 141 which uses
the expression "company", the appeal filed by the complainant
therein was allowed.
6.9 On considering the aforesaid judgments, we observe that even
if we have to come to the conclusion that the juristic entity i.e.,
the partnership firm is the primary accused in the instant case it
would be necessary for us to also state that such a juristic entity,
namely, a partnership firm is not distinct from the partners who
comprise the partnership. In other words, if the complainant had
proceeded only against the partnership firm and not the partners
it possibly could have been held that the partnership firm in the
absence of its partners is not a complete juristic entity which
can be recognised in law and therefore cannot be proceeded
against. On the other hand, in the instant case the complainant
has proceeded against the two partners. The complainant is
aware of the fact that the cheque has been issued in the name
of the partnership firm "Mouriya Coirs" and has been signed by
one of the partners. The complainant has proceeded against
the partners only without arraigning the partnership firm as an
accused. It is necessary to reiterate that a partnership firm in
the absence of its partners cannot at all be considered to be a
juristic entity in law. On the other hand, the partners who form
a partnership firm are personally liable in law along with the
partnership firm. It is a case of joint and several liability and
not vicarious liability as such. Therefore, if the complainant
herein has proceeded only against the partners and not against
the partnership firm, we think it is not something which would
go to the root of the matter so as to dismiss the complaint on
that ground. Rather, opportunity could have been given to the
complainant to implead the partnership firm also as an accused
in the complaint even though no notice was sent specifically in
the name of the partnership.
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6.10 Alternatively, notice to the partners/accused could have been
construed as notice to the partnership firm also. We say so for
the reason that unlike a company which is a separate juristic
entity from its directors thereof, a partnership firm comprises of
its partners who are the persons directly liable on behalf of the
partnership firm and by themselves. Therefore, a partnership
firm, in the absence of the partners being arraigned as accused
would not serve the purpose of the case and would be contrary
to law. On the other hand, even in the absence of making a
partnership firm an accused in the complaint, the partners being
made the accused would be sufficient to make them liable
inasmuch as the partnership firm without the partners is of no
consequence and is not recognised in law. This is because in
the case of a partnership firm, the said juristic entity is always
understood as a compendious term namely, the partnership firm
along with its partners. Therefore, if the appellant-complainant
had proceeded only against the partnership firm and not its
partners then possibly the respondents would have been right
in contending that the complaint was not maintainable but
here the case is reversed. The complainant herein has not
arraigned the firm but has arraigned the partners of the firm
as accused and has also issued notice to them; therefore,
we find that the defect, if any, is not significant or incurable
in these circumstances. Permission is therefore to be granted
to the complainant to arraign the partnership firm also as an
accused in the complaint. Moreover, the cheque was issued
in the name of the firm and signed by one of the partners,
for and on behalf of the other also, therefore, the liability is
deemed to be on both the partners of the firm.
Hence permission is given to arraign the partnership firm as
an accused having regard to the peculiar characteristics of
a partnership firm and a company on which aspect we will
discuss further.
Difference between a partnership firm and a company:
7.
Predominantly a product of judge-made law, the law of partnership
was first codified in India by the Indian Partnership Act, 1932. Prior
to the coming in force of the Partnership Act, Chapter XI of the
Indian Contract Act, 1872 (hereinafter 'ICA') defined a partnership,
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Dhanasingh Prabhu v. Chandrasekar & Another
outlined the rights and obligations of partners and provided various
provisions governing the operation and existence of partnerships.
Section 239 of ICA defined a partnership as:
"Partnership is the relation which subsists between persons
who have agreed to combine their property, labour or skill
in some business and to share the profits thereof."
7.1 The Partnership Act was promulgated as it was considered
expedient to define and amend the law relating to partnership.
As it stands today, partnership law is codified in the Partnership
Act and the Limited Liability Partnership Act, 2008. It is trite
that these legislations, like all codifications of partnership law
in common law, are based on the law of agency.
7.2 Section 4 of the Partnership Act defines a partnership, partner,
firm and firm name as follows:
"4. Definition of "partnership", "partner", "firm"
and "firm name".-
"Partnership" is the relation between persons who
have agreed to share the profits of a business carried
on by all or any of them acting for all.
Persons who have entered into partnership with
one another are called individually "partners" and
collectively "a firm", and the name under which their
business is carried on is called the "firm name".
(underlining by us)
7.3 The definition in Section 4 of the Partnership Act is a departure
from the erstwhile definition of partnership in Section 239 of
ICA. A significant departure, inter alia, is the insertion of "acting
for all" which brings in the concept of agency. An amendment
of substantial import carried out by the Special Committee was
with the intent to elucidate clearly the fundamental principle
that the partners when carrying on the business of the firm are
agents as well as principals.1 Pollock & Mulla also notes the
salient distinction between the meanings of 'partnership' and
1
Chapter 2, Pollock & Mulla, The Indian Partnership Act, 8th Edn. Lexis Nexis Butterworths.
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'firm'. Tracing from Section 4, Pollock & Mulla clarifies that the
word "partnership" is used throughout the Partnership Act in
the defined sense of a relationship and where the partners are
referred to collectively, the word "firm" is used. It is pertinent to
recall that Explanation to Section 141 of the Act provides that
for the purposes of that section, a company includes a firm or
other association of individuals. Nevertheless, the distinction
is crucial because it lends credence to the interpretation that
reference in Section 141 is as much to the partners of the firm
as it is to directors of a company.
7.4 According to Pollock and Mulla, 8th Edition, the definition of
partnership in Section 4 of the Partnership Act contains three
elements; (i) there must be an agreement entered into by all
the persons concerned; (ii) the agreement must be to share the
profits of a business; and (iii) the business must be carried on
by all or any of the persons concerned, acting for all. All these
elements must be present before a group of associates can
be held to be partners. These three elements may appear to
overlap, but they are nevertheless distinct. The third element
shows that the persons of the group who conduct the business
do so as agents for all the persons in the group and are therefore
liable to account for all. This Court while elaborating the third
essential element has held that the position of a partner in the
firm is thus not of a master and a servant or employer and
employee which concept involves an element of subordination,
but that of equality. It may be that a partner is being paid some
remuneration for any special attention which he devotes but that
would not involve any change of status or bring him within the
definition of employee, vide Regional Director, Employees'
State Insurance Corporation vs. Ramanuja Match Industries,
(1985) 1 SCC 218, Paras 4 and 9.
7.5 In Section 4 of the Partnership Act, it is clearly stated that
persons who have entered into partnership with one another
are individually called partners and collectively a firm and the
name under which their business is carried out is called a firm
name. Thus, while partnership is the relation between persons
who have agreed to share profits of the business carried on
by all or any of them acting for all, the persons are collectively
called a firm and the name of the firm is the firm name which is
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Dhanasingh Prabhu v.