“Mixed questions of fact and law touching on the anvil of disputed questions calling for proof by way of evidence, cannot be gone into and decided in a proceeding under Section 482 CrPC”, with this pointed observation, the Supreme Court of India delivered a significant ruling in a case involving allegations of cheque dishonour and the liability of a retired partner, while addressing fundamentals questions of statutory compliance and criminal responsibility.
Read further to understand the rationale of the Court’s directive in deciding the accountability of a former partner and the scope of judicial intervention in criminal proceedings.
Brief Facts:
The case arose from a complaint filed by Shivappa Reddy under Section 200 of the CrPC, alleging an offence under Section 138 of the Negotiable Instruments Act, 1881 (NI ACT) against M/s AVS Constructions, a partnership firm, and its partners. The complaint stemmed from the dishonour of twelve cheques, each worth ₹50,00,000, totalling ₹6,00,00,000, issued by the firm for refunding sale consideration. The cheques, signed by Yuvaraju (the authorized signatory), were dishonoured due to ‘stop payment’ instructions. After serving a statutory notice and receiving no payment, the Complainant initiated proceedings, and the Trial Court issued a summons upon taking cognizance. The respondent claimed that he had retired from the firm on 01.04.2015, and challenged the proceedings under Section 482 CrPC before the Karnataka High Court, which quashed the case against him. This led the appellant to appeal to the Supreme Court, alleging non-compliance with the Indian Partnership Act, 1932, and fabrication of a backdated retirement deed by the Respondent.
Contentions of the Appellant:
The Counsel of the Appellant argued that the Respondent, remained liable as a partner of M/s AVS Constructions, as he failed to comply with the mandatory provisions of Sections 32, 62, 63, and 72 of the Indian Partnership Act, 1932. They contended that no public notice of the respondent’s alleged retirement was published in a vernacular newspaper, as required under Section 72, and that the Registrar of Firms’ records, verified via a certified copy of Form-A, confirmed respondent’s status as a partner at the time of cheque issuance. The Appellant further alleged that the respondent fabricated a backdated retirement deed, with an entry in the Registrar’s ledger, post-dating both the cheques and the legal notice. They asserted that the respondent’s active involvement in the firm’s affairs, including assurances of repayment, satisfied the requirements for liability under Section 141 of the NI Act.
Contentions of the Respondent:
The Counsel for the Respondent argued that he had retired from the partnership firm on 01.04.2015, before the cheques were issued, and thus could not be held liable under Section 138 of the NI Act. They emphasized that the cheques were signed by S. Yuvaraju in his individual capacity, not on behalf of the firm and that there was no legally enforceable debt against the Respondent. The Respondent contended that his retirement was communicated in response to the legal notice, absolving him of liability.
Observation of the Court:
The Supreme Court, in its judgment, set aside the Karnataka High Court's order dated 23.09.2023, which had quashed proceedings against Respondent S. Srinivasan under Section 138 of the NI Act.
The Court emphasized that the High Court exceeded its jurisdiction under Section 482 of the CrPC by delving into disputed factual questions that required evidentiary proof.
The Court held, “All these aspects are mixed questions of fact and law touching on the anvil of disputed questions calling for proof by way of evidence, which cannot be gone into and decided in a proceeding under Section 482 CrPC.”
The Court underscored the statutory requirements under the Indian Partnership Act, 1932, particularly Sections 32, 62, 63, and 72, which mandate public notice and formal registration of a partner’s retirement with the Registrar of Firms to absolve liability.
The Court noted that “None of these requirements as provided and mandated for under the Statute, have been adhered to by Respondent No.1.”
The Court rejected the Respondent’s claim of non-liability due to alleged retirement, observing that, “Merely putting forth a resignation or the partners entering into an agreement or drafting a deed or/and accepting the resignation of a partner of the Firm is insufficient for discharging the liability of a partner of the Firm unless a proper entry to the said effect after the publication has been given effect to with the same, having been recorded in the Register of Firms in the office of the Registrar of Firms as provided for in Section 63 of Partnership Act.”
Additionally, the Court clarified that the Respondent’s liability under Section 138 read with Section 141 of the NI Act was not negated simply because the cheques were signed by another partner, as the complaint alleged the Respondent’s active involvement in the firm’s affairs.
Further, the court held that merely because the cheques were signed by S. Yuvaraju does not discharge the liability of the Respondent as the Respondent along with the other two partners of the Partnership Firm is involved in day-to-day affairs of the said Firm.
The decision of the Court:
In view of the foregoing discussion, the Supreme Court restored the trial proceedings, directing the Trial Court to proceed in accordance with the law, while clarifying that its observations would not prejudice the trial’s merits.
Case Title: Shivappa Reddy Vs. S. Srinivasan
Case No: Criminal Appeal No. 4363 Of 2024
Citation: 2025 Latest Caselaw 569 SC
Coram: Justice Abhay S. Oka and Justice Augustine George Masih
Counsel of the Appellant: Senior Devadatt Kamat; AOR Nishanth Patil; Advocates Raghunath Reddy, Ayush P Shah, Nachiketh R Reddy, Harsh Pandey, Revanta Solanki, Ajay Desai and Arijit Dey
Counsel of the Respondent: Senior Advocate Swarupama Chaturvedi; AOR Anil Katiyar; Advocates Kanika and Shashank Bajpai
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