HC on Sec.138 NI Act: Even an unregistered Partnership Firm can file a Complaint. [Read the Judgement]

10 Feb 2020

Categories: Latest News Case Analysis

The Bombay High Court, in its last Friday judgement, held that an unregistered partnership firm can maintain a complaint under Section 138 of the Negotiable Instruments Act.

The judgement was delivered by the Nagpur Bench of the Bombay High Court in a case titled Narendra v. Balbir Singh.

During the hearing, the Court was answering to a reference from an order of a Single Judge, questioning one earlier view of the High Court taken in Sai Accumulator Industries, Sangamner v. Sethi Brothers, Aurangabad, 2016(5) Mh.LJ 936, that, an Unregistered Partnership firm cannot maintain a complaint under Section 138 of the Negotiable Instruments Act due to the bar contained in Section 69(2) of the Indian Partnership Act.

Section 69(2) states:

"No suit to enforce a right arising from a contract shall 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 in the firm."

In the backdrop, the Applicant herein an unregistered firm, had initiated proceedings under Section 138 of the Negotiable Instruments Act for the dishonor of cheque.

On the other hand, the Respondent contested the proceedings, stating that the applicant didn't have the locus to initiate such proceedings, in view of the bar under Section 69(2).

The Court after listening to the arguments held that the term 'suit' under Section 69(2) must receive its 'plain and simple meaning' and should not be stretched for securing immunity from criminal prosecutions.

"There is no point in stretching the bar which is in the nature of temporary bar to the suit to the complaints under Section 138 of the N. I. Act, which is in the nature of penal provision with the object to inculcate faith in banking transactions."

In this regard, reliance was placed on Andhra Pradesh High Court's judgement in AV Ramanaiah v. M. Shekhara, ALD(CRI) 2009 2 801, in which it was observed:

"the bar contained under Section 69 of the Act of 1932 is intended to prevent an unregistered partnership firm to enforce a right arising out of a contract against a third party, and that it is not intended to create any such bar for the purposes of enforcing rights arising out of statutes or for invoking the protection available under any other statute."

Accordingly, the High Court answered the reference as under,

"The prosecution of an accused under Section 138 of the Negotiable Instruments Act, 1888, is not hit by the bar created by sub-section (2) of Section 69 of the Indian Partnership Act, 1932."

It added,

"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."

The judgement has been delivered by Justice PN Deshmukh and Justice Pushpa V Ganediwala on 07-02-2020.

Tags : Bombay High court Negotiable Instruments Act HIGH COURT Indian Partnership Act

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