MUMBAI: The Bombay high court (HC) last week held that an unregistered partnership firm can initiate prosecution for dishonoured or bounced cheques.
A bench of justices PN Deshmukh and Pushpa Ganediwala held that prosecution of an accused under section 138 of the Negotiable Instruments Act, 1888, for dishonour of cheques is not affected by section 69 (2) of the Indian Partnership Act, 1932, which prohibits an unregistered partner firm from filing suits to enforce rights stated in a contract. According to the section, no suit can 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.
The issue was referred to the division bench in October 2018, after a single judge refused to accept the view taken by another judge. In a 2016 judgement, the other single judge had ruled that the complaint filed by an unregistered firm under section 138 of the Negotiable Instrument Act, 1888, was not tenable in view of the bar set by section 69(2).
Refusing to accept the 2016 view, the HC bench said the term ‘suit’ under section 69(2) of the Partnership Act, 1932, “cannot be stretched for securing immunity from criminal prosecutions”. “The bar under section 69(2) of the Act is liable to be confined only to enforcement of contractual obligations,” the judges ruled.
They said that even otherwise, the bar under section 69(2) is temporary; if a suit is rejected for being barred by the section, then the partnership firm can, under Order 7 Rule 13 of the Act, present a fresh suit after getting the firm registered.
The division bench noted that sections 138 to 142 of the Negotiable Instruments Act were added by a 1998 amendment, specifically to enhance the acceptability of cheques in liability settlement by making the drawer liable for penalties in case the cheque bounces due to lack of funds. It added that these are penal provisions which entail prosecution and conviction on proving guilt, and the bar on enforcing contractual rights cannot be stretched to these penal provisions.
{{/usCountry}}The division bench noted that sections 138 to 142 of the Negotiable Instruments Act were added by a 1998 amendment, specifically to enhance the acceptability of cheques in liability settlement by making the drawer liable for penalties in case the cheque bounces due to lack of funds. It added that these are penal provisions which entail prosecution and conviction on proving guilt, and the bar on enforcing contractual rights cannot be stretched to these penal provisions.
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