Brief Overview:

The partners of a partnership firm may be held liable under Section 138 of the Negotiable Instruments Act, 1881 (“NI Act”), even in the absence of the firm being arrayed as an accused. This is because a partnership firm, unlike a company, does not possess a separate legal identity and is, in essence, a compendious name for its partners.

Technical Details:

1) The complaint was filed under Section 138 of the NI Act, against two partners of a partnership firm, following the dishonour of a cheque issued in the firm’s name due to a frozen account. However, the Madras High Court quashed the proceedings on the ground that the firm was neither served with the statutory notice nor arraigned as an accused.

2) The quashing order was challenged before the Supreme Court (“SC”), which reversed the decision of Madras High Court with the following observations:

(a) No distinct identity: A partnership firm is not a separate legal person, it is an association of its partners.

(b) Notice to partners is enough notice: Serving the statutory notice on the partners satisfies legal requirements.

(c) Not naming the firm in the complaint, is not fatal: The non-impleadment of the firm as an accused does not invalidate the proceedings.

(d) Joint and several liability applies: All partners can be held personally and jointly liable for an offence of this nature.

(e) Firm’s name is merely a label: The firm’s name is merely a label, it is the partners who bear the legal responsibility arising from such defaults.

JC takeaway:

Partners are personally liable under Section 138 of the NI Act, jointly and severally. The omission of the firm’s name does not invalidate the complaint.

For further details, please see:

Dhanasingh Prabhu v. Chandrasekar & Anr. [Special Leave Petition (Criminal) No.5706 of 2024].

https://api.sci.gov.in/supremecourt/2024/10776/10776_2024_5_1502_62289_Judgement_14-Jul-2025.pdf

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