Cheque Bounce Case can’t be rejected just because Partnership Firm was not named

The Supreme Court of India has made an important decision related to cheque bounce cases under Section 138 of the Negotiable Instruments Act, 1881. The Court said that a criminal complaint for a dishonoured cheque cannot be rejected just because the partnership firm (on whose behalf the cheque was issued) was not named as an accused.

This ruling was given by a bench of Justice B.V. Nagarathna and Justice Satish Chandra Sharma. The judges explained that in a partnership, the partners are personally responsible for any debts or wrongdoings. This means that even if the firm is not mentioned as an accused, the complaint can still continue against the partners.

Background of the Case

The case started when Dhanasingh Prabhu gave a loan of ₹21 lakh to two partners of a business named Mouriya Coirs. To repay the loan, one of the partners gave a cheque dated 1 February 2021, drawn from the partnership firm’s bank account. However, when the cheque was presented to the bank the next day, it bounced because the account was frozen.

After the cheque was dishonoured, the complainant sent legal notices to both partners on 1 March 2021. But the notice was not sent to the partnership firm itself. Later, Dhanasingh Prabhu filed a criminal complaint in court under Section 138 for cheque dishonour. Again, the firm was not named as an accused in the complaint—only the two partners were.

High Court Had Dismissed the Case

The accused partners approached the Madras High Court, which dismissed the complaint on 26 February 2024. The High Court said that since the cheque was issued on behalf of the firm, the firm must also be named in the complaint and receive a legal notice. Otherwise, the complaint is not valid under Section 141 of the Negotiable Instruments Act, 1881.

Appeal to the Supreme Court

The complainant challenged the High Court’s decision in the Supreme Court. His argument was that a partnership firm is not a separate legal body like a company, so it’s not necessary to name the firm separately. He said that partners have unlimited liability, and they can be held responsible without naming the firm.

The lawyers for the accused disagreed. They argued that Section 141 treats a firm like a company and a partner like a director. So, the firm should be the main accused, and only then can partners be held responsible.

Supreme Court’s Observations and Final Ruling

The Supreme Court carefully examined the legal difference between a company and a partnership firm.

• A company is a separate legal entity. Its directors are different from the company itself.
• A partnership firm, on the other hand, does not have a separate legal identity. It is just a name used by its partners.

The Court said that while directors of a company can only be held responsible in a vicarious (indirect) way, partners in a firm are jointly and severally liable. This means each partner is directly responsible, both together and individually, for the firm’s actions.

The Supreme Court clarified that the rule from previous judgments (like Aneeta Hada vs. Godfather Travels) applies to companies, not to partnership firms.

The Court further said that:

• Not naming the firm in the complaint or the legal notice is not a serious error.
• Sending a notice to the partners is enough, because they represent the firm.
• The complainant should have been given a chance to add the firm as an accused, instead of dismissing the complaint entirely.

Court’s Final Decision

The Supreme Court allowed the appeal and cancelled the Madras High Court’s order. It restored the original complaint (STC No.1106/2022) and sent it back to the Judicial Magistrate No. II, Pollachi.

The Court also gave permission to the complainant to add the partnership firm as an accused, and told the lower court to proceed with the case as per the law.

• Download Court Order