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Kerala HC: Managing Partner Not Liable Under Section 138 NI Act Without Firm as Party

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Kerala HC Law Insider

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Published on: 04 September 2023 at 17:58 IST

The Kerala High Court has ruled that prosecuting a managing partner under Section 138 of the Negotiable Instruments Act (NI Act) would not succeed if the partnership firm is not included as a party.

Justice A. Badharudeen set aside both the conviction and sentence imposed by the lower courts, asserting that in Section 138 NI Act prosecutions, the firm must be listed as a party; otherwise, the entire prosecution is flawed.

In this case, the firm “Ganga Marbles and Granites” should have been accused as the principal offender, with the accused/revision petitioner being charged under principles of vicarious liability, the court noted.

The judgment referenced the decision in P.I. Moideen Kutty v. Abdul Rasheed V. and Another, emphasizing that individuals mentioned in subsections (1) and (2) of Section 141 of the NI Act cannot be convicted based on vicarious liability principles unless the company or firm is the principal offender under Section 138 of the NI Act.

The case involved a cheque for Rs. 2,40,000 issued by the accused in favor of the complainant, which bounced due to “exceeds arrangement.” A legal notice demanding the amount was sent, and a prosecution was initiated under Section 138 of the Negotiable Instruments Act.

The accused was subsequently found guilty and sentenced to imprisonment and fined. The Special Judge, on appeal, upheld the conviction and sentence imposed by the trial court.

Upon examination, the court determined that the cheque was issued on behalf of “Ganga Marbles and Granites” by the Managing Partner. However, the complaint listed only Mr. Binu as the accused, without including the firm. The court emphasized that the explanation to Section 141 of the NI Act defines “company” to include a firm or other association of individuals, and “director,” in relation to a firm, means a partner.

Thus, ‘Ganga Marbles and Granites,‘ a partnership firm falling within the definition of a company under Section 141 of the NI Act, should be considered guilty and subject to proceedings and penalties. Accordingly, the High Court acquitted the accused and annulled the sentences imposed by the lower courts.

Case Title: Binu v. State of Kerala and Anr.