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In a judgment delivered on a cheque-bounce case, the Supreme Courtroom on 14 July dominated that such companions may be prosecuted straight even when the partnership agency itself shouldn’t be formally named as an accused.
Setting apart a earlier Madras Excessive Courtroom order, the apex courtroom emphasised the elemental authorized distinction between a partnership agency and an organization, reinforcing that companions bear direct, joint, and a number of other legal responsibility for a partnership agency’s actions—not like administrators of an organization.
A partnership agency and its companions are the identical within the eyes of the regulation, and thus, a discover to such companions is successfully a discover to the agency, the Supreme Courtroom clarified.
Authorized specialists stated the Supreme Courtroom’s determination would have wide-ranging implications for business litigation, because it strengthens the place of collectors by guaranteeing that people liable for issuing dud cheques from partnership accounts may be held accountable extra swiftly.
The core of the problem rested on the interpretation of Part 141 of the Negotiable Devices Act. It offers with offences by corporations and likewise outlines the legal responsibility of companions when a agency commits an offence below Part 138, which pertains to dishonoured cheques.
“Earlier, many courts had taken the view {that a} grievance below Part 138 of the Negotiable Devices Act towards the companions of a partnership agency was not maintainable until the agency itself was additionally named as an accused and served with a statutory discover,” stated Abhinav Agnihotri, companion at Burgeon Regulation. “This typically allowed the accused companions to flee prosecution on technical grounds.”
The Supreme Courtroom’s ruling dismantled this defence.
“The courtroom reasoned that, below Indian regulation, a partnership agency shouldn’t be a separate authorized entity from its companions, who’re collectively and severally liable,” Agnihotri added. “This considerably streamlines the prosecution course of in cheque-bounce circumstances by eradicating a technical hurdle, making it virtually simpler and faster to proceed towards the people accountable.”
The ruling’s distinction between a standard agency and a restricted legal responsibility partnership shall be helpful in deciphering different statutes just like the Firms Act, stated Gaurav Pingle, an organization secretary.
“The Supreme Courtroom has upheld the fundamental rules of company regulation—i.e., separate authorized entity, perpetual succession, (and) legal responsibility of companions in relation to the legal responsibility of partnership agency below Negotiable Devices Act, 1881,” he stated.
‘Each companion is liable’
The case concerned a mortgage of ₹21 lakh superior by Dhanasingh Prabhu to companions in Mouriya Coirs. One companion, on behalf of the agency, issued a cheque in the direction of repaying the mortgage, however the cheque was dishonoured as a result of the agency’s account was frozen.
Whereas Prabhu issued a statutory discover to 2 companions of Mouriya Coirs, he didn’t title the agency as an accused. The Madras Excessive Courtroom quashed the grievance on the grounds that the agency was not arraigned as an accused.
Reversing this, the Supreme Courtroom delved into the distinct nature of a partnership agency. Justice B.V. Nagarathna, writing for the bench, noticed {that a} partnership is essentially completely different from an organization.
“Partnership is merely a handy title to hold out enterprise by companions. Thus, a agency shouldn’t be an entity of individuals in regulation however is merely an affiliation of people and agency title is simply a collective title of these people who represent the agency,” he wrote.
The Supreme Courtroom clarified {that a} agency is merely a “compendious title” for its companions. In impact, continuing towards the companions is continuing towards the agency itself.
“Each companion is liable, collectively with all the opposite companions and likewise severally, for all acts of the agency performed whereas he’s a companion,” the courtroom famous, referencing Part 25 of the Indian Partnership Act.
“A grievance can validly lie towards the companions with out naming the agency, for the reason that legal responsibility is private and never vicarious,” stated Suvigya Awasthy, companion at PSL Advocates and Solicitors.
Whereas the Supreme Courtroom’s judgment settles a key authorized query, some specialists pointed to potential challenges.
Awasthy raised issues in regards to the danger of misuse towards companions who will not be concerned within the day-to-day operations of a partnership agency or a selected transaction that led to a dishonoured cheque.
“Since companions in a partnership agency are personally, collectively and severally answerable for the acts of the agency, a grievance below the NI Act (Negotiable Devices Act) may be filed towards all of the companions, no matter their precise position or involvement within the particular transaction,” he warned.
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