The Nagpur bench of the Bombay High Court on Friday held that prosecution of cheque bounce cases under Section 138 of the Negotiable Instruments Act, 1888 (NI Act) will not be hit by the bar created by Section 69(2) of the Indian Partnership Act, 1932. Section 69(2) of the Indian Partnership Act puts bar on unregistered firms from filing suits to enforce rights which arise out of a contract. The Division bench of Justice PN Deshmukh and Pushpa Ganediwala held that the prosecution of an accused under Section 138 of the NI act is not hit by the bar created under Section 69(2) of the Indian Partnership act.
Prior facts
Earlier in front of a Single judge bench of the Bombay High Court, in the case of Sai Accumulator Industries Sangamner v. Sethi Brothers Aurangabad, the Court held that a complaint filed under Section 138 of the NI act, by an unregistered firm, is not maintainable in view of the bar created by Section 69(2) of the Indian Partnership act. However, when the present case came before the Court, the Court expressed a different opposing view and referred it for the consideration of a larger bench.
Key features
- Section 69(2) of the Indian Partnership Act should be received in its plain and simple meaning, it can’t be stretched far so as to receive immunity from criminal prosecution.
- Bar under Section 69(2) of the Indian Partnership Act is to be confined to contractual obligations only.
- Prosecution of cheque bounce cases under Section 138 of NI act will not be hit by the bar created under Section 69(2) of the Indian Partnership act.
The Division bench’s verdict
The Division bench of Justice PN Deshmukh and Justice Pushpa Ganediwala, was tasked with deciding the question whether the prosecution of an accused under Section 138 of NI act is hit by the bar created under Section 69(2) of the Indian Partnership Act? which was referred to it by the Single judge bench. The bench held that the bar created under Section 69(2) of the Indian Partnership Act does not hit prosecution of an accused from initiating suit under Section 138 of the NI act.
The Court after hearing both the parties held that, decision of the court in Sai Accumulator Industries Sangamner v. Sethi Brothers Aurangabad relied on a judgment of the High Court of Judicature at Hyderabad and that judgment has been overruled by a judgment of that High Court in the case of AV Ramanaiah v. M Shekhara, which was passed in December 2007. In that case, it was held that the bar contained under Section 69(2) of Indian Partnership Act would not attract the initiation of actions by or against any unregistered firm for offence committed under Section 138 of NI act.
The Division bench held:
“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.”
In view of the above the Court said that, the term ‘suit’ under Section 69(2) of the Indian Partnership Act must be received in its plain and simple meaning. Its meaning cannot be stretched for securing immunity from criminal prosecution. The bar created under Section 69(2) of Indian Partnership act confines only to enforcement of contractual obligations.
Thus the bench ultimately answered the reference by saying, prosecution for cheque bouncing cases under Section 138 of the Negotiable Instruments act will not be hit by the bar created under Section 69(2) of the Indian Partnership act.
Edited by J. Madonna Jephi
Approved & Published – Sakshi Raje
Reference
1. Narendra v. Balbirsingh, Criminal Appeal no. 748, 2018.
