Supreme Court of India
DHANASINGH PRABHUversusCHANDRASEKAR & ANOTHER
- Citation
- 2025 INSC 831
- Decided
- 14 July 2025
- Disposal
- Case Allowed
- Bench
- B V NAGARATHNA
Holding
A partnership firm is not a separate legal entity; notice to its partners is deemed notice to the firm, and the complaint is maintainable even if the firm is not expressly named as an accused.
Summary
The appellant, Dhanasingh Prabhu, advanced a loan of Rs.21 lakh to the respondents who were partners of the partnership firm “Mouriya Coirs”. The respondents issued a cheque in the name of the firm which was dishonoured, prompting the appellant to serve a statutory notice under Section 138 of the Negotiable Instruments Act and file a criminal complaint against the two partners. The Madras High Court quashed the complaint on the ground that the partnership firm itself was neither served notice nor named as an accused, alleging non‑compliance with Section 141. On appeal, the Supreme Court examined the nature of a partnership firm under the Partnership Act and the meaning of “company” and “director” in the Explanation to Section 141, holding that a partnership firm is not a distinct legal entity and that notice to the partners suffices as notice to the firm. Consequently, the Court allowed the appeal, set aside the High Court order, restored the complaint and directed that the partnership firm may be impleaded as an accused. The decision clarifies that partners are jointly and severally liable for offences committed in the firm’s name, and the lack of a separate notice to the firm is not a fatal defect.
Issues considered
- Whether the complaint is maintainable when the partnership firm’s name is omitted from the statutory notice under Section 138 and the firm is not arraigned as an accused under Section 141 of the Negotiable Instruments Act.
- How the terms “company” and “director” in the Explanation to Section 141 should be interpreted with respect to a partnership firm and whether vicarious liability applies.
Legislation cited
- Bharatiya Nagarik Suraksha Sanhita, 2023
- Code of Civil Procedure, 1908
- Code of Criminal Procedure, 1973
- Companies Act, 1956
- Companies Act, 2013s. 2(2), s. 9
- Contract Act, 1872
- Limited Liability Partnership Act, 2008
- Negotiable Instruments Act, 1881s. 138, s. 141
- Partnership Act, 1932s. 25, s. 26, s. 4, s. 42
Headnote
Issue for Consideration Whether the High Court was right in dismissing the complaint on the ground that the name of the partnership firm was not mentioned in the statutory notice issued by the appellant/complainant to the respondents u/s.138 of the Negotiable Instruments Act, 1881 and was also not in the complaint filed by the appellant/complainant. Headnotes† Negotiable Instrument Act, 1881 – ss.138, 141 – Partnership Act, 1932 – Appellant-complainant advanced a loan of Rs.21,00,000/- to the respondent nos.1 and 2 (a partneship firm) for business purposes
Subjects
Partnership firmName of Partnership firmPartnership firm not arraigned as an accusedDischarge of debtDishonour of chequeLiability of PartnersCriminal liability of partnersSection 138 of Negotiable Instrument Act, 1881Section 141 of Negotiable Instrument Act, 1881Difference between a partnership firm and a companySeparate legal entityOffence committed by partnership firmSeparate Legal PersonalityPersonally liableJointly and severally liable
Judgment
[2025] 7 S.C.R. 655 : 2025 INSC 831
Dhanasingh Prabhu
v.
Chandrasekar & Another
(Criminal Appeal No. 2994 of 2025)
14 July 2025
[B.V. Nagarathna* and Satish Chandra Sharma, JJ.]
Issue for Consideration
Whether the High Court was right in dismissing the complaint on
the ground that the name of the partnership firm was not mentioned
in the statutory notice issued by the appellant/complainant to the
respondents u/s.138 of the Negotiable Instruments Act, 1881 and
was also not arraigned as an accused in the complaint filed by
the appellant/complainant.
Headnotes†
Negotiable Instrument Act, 1881 – ss.138, 141 – Partnership Act,
1932 – Appellant-complainant advanced a loan of Rs.21,00,000/-
to the respondent nos.1 and 2 (a partneship firm) for business
purposes – In order to discharge debt, a cheque was issued in
the name of the partneship firm signed by respondent no.1 –
Cheque was returned as dishonoured – Appellant-complainant
issued a statutory notice to the respondents – Thereafter,
the appellant-complainant filed a complaint before the trial
Court – Respondents filed petition u/s.482 CrPC for quashing
of complaint – The High Court quashed the complaint on
the ground that while the cheque was issued on behalf of
the partnership firm, no statutory notice was issued to the
partnership firm and it was also not arraigned as an accused
in the complaint – According to the High Court, the rigours
of s.141 of the Act were not complied with – Correctness:
Held: 1. The High Court was not right in rejecting or dismissing the
complaint for the reason that the partnership firm was not arraigned
as an accused in the complaint or that notice had not been issued
to it u/s.138 of the Act – The notice issued to the partners of the
firm in the instant case shall be construed to be a notice issued to
the partnership firm – The complainant herein has not arraigned
* Author
656 [2025] 7 S.C.R.
Supreme Court Reports
the firm but has arraigned the partners of the firm as accused
and has also issued notice to them; therefore, the defect, if any,
is not significant or incurable in these circumstances – Permission
is granted to arraign the partnership firm as an accused in the
complaint. [Paras 10, 6.10]
2. A partnership firm, unlike a company registered under the Indian
Companies Act or a limited liability partnership registered under the
Limited Liability Partnership Act, 2008, is not a distinct legal entity
and is only a compendium of its partners – Even the registration
of a firm does not mean that it becomes a distinct legal entity like
a company – The firm name is a convenient method of describing
a group of persons associated together in business at a certain
point of time: no more or no less – While a director is a separate
persona in relation to a company, in the case of a partnership firm,
the partner is not really a distinct legal persona – This is because a
partnership firm is not really a legal entity separate and distinct as
a company is from its directors but can have a legal persona only
when the partnership firm is considered along with its partners –
Thus, the partnership firm has no separate recognition either
jurisprudentially or in law apart from its partners – The partners
of the firm are liable for the dishonour of a cheque, even though
the cheque may have been issued in the name of the firm and
the offence is committed by the firm – If a partnership firm is liable
for the offence u/s.138 of the Act, it would imply that the liability
would automatically extend to the partners of the partnership firm
jointly and severally. [Paras 8, 8.2, 9.7, 9.8]
Partnership Act, 1932 – s.4 – Companies Act, 2013 – s.2(2)
s.9 – Difference between a partnership firm and a company –
Discussed.
Partnership Act, 1932 – Companies Act, 1956 or 2013 –
A Partnership firm may not be a legal entity in the sense of
a corporation or a company:
Held: A firm is not an entity of persons in law but is merely an
association of individuals and firm name is only a collective name
of those individuals who constitute the firm – In other words, the
firm name is merely an expression, only a compendious mode of
designating the persons who have agreed to carry on business in
partnership – Thus, a firm may not be a legal entity in the sense
of a corporation or a company incorporated under the Companies
[2025] 7 S.C.R. 657
Dhanasingh Prabhu v. Chandrasekar & Another
Act, 1956 or 2013, but it is still an existing concern where business
is done by a number of persons in partnership. [Para 7.6]
Partnership Act, 1932 – Partnership Firm – Whether a Separate
Legal Personality:
Held: A partnership firm, unlike a company registered under the
Companies Act, does not possess a separate legal personality and
the firm’s name is only a compendious reference for describing
its partners – This fundamental distinction between a firm and a
company rests on the premise that the company is separate from
its shareholders. [Para 7.9]
Partnership Act, 1932 – Partnership firm – Liability of Partners:
Held: The partners of a firm have unlimited liability to the creditors
of the firm – This is as opposed to a limited company or a limited
liability partnership, wherein the liability of the directors or the
shareholders is to the extent of their share in the limited company
or limited liability partnership and limited to the nominal value
of the shares held by them or the amount guaranteed by the
shareholder when it comes to a company – Thus, the debt of the
firm is the personal debt of a partner and the debt of the firm has
to be incurred by each partner as a financial personal liability –
Insofar as criminal liability is concerned, once it is established
that an illegal act has been committed by the firm or its partners,
then the partners will be jointly liable for it [Paras 7.20 and 7.21]
Negotiable Instrument Act, 1881 – s.141 – Partnership Act,
1932 – Companies Act, 1956 or 2013 – Whether the expression
“director” in sub-section (2) of Section 141 is restricted to a
director of an incorporated company or a statutory body or
whether it also includes a partner of a firm:
Held: On a conjoint reading of the various clauses of Section 141,
what emerges is that the expression “company” has been used
in an expansive way to include not just a company incorporated
under the provisions of the Companies Act stricto sensu but also
any body corporate such as a statutory company as well as other
artificial juristic entity such as a partnership firm or other association
of individuals – Hence, the expression “director” in sub-section (2) of
Section 141 is not restricted to a director of an incorporated company
or a statutory body, but also includes a partner of a firm – The
658 [2025] 7 S.C.R.
Supreme Court Reports
expression “director” in sub-section (2) of Section 141 of the Act in
relation to a firm means a partner, which is also a legislative device
adopted by the Parliament knowing fully well and being conscious
of the fact that a partnership firm, jurisprudentially speaking, does
not stand on par with a director of a body corporate – Since the
Parliament has used the expression “company” encompassing all
types of juristic persons, it was necessary to give an expanded
definition to the expression “director” in relation to a firm to mean
a partner in the firm – Therefore, the inclusion of a firm within the
meaning of the expression “company” is by a legal fiction and
by way of a legislative device only for the purpose of creating a
liability on the partners of the firm, which in any case, they are
liable under the law of partnership in India. [Para 9.6]
Negotiable Instrument Act, 1881 – ss.138 and 141 – When
offence is committed by the company and when the offence
is committed by a Partnership firm:
Held: When it is a case of an offence committed by a company
which is a body corporate stricto sensu, the vicarious liability
on the categories of persons mentioned in sub-section (1) and
sub-section (2) of Section 141 of the Act accordingly would be
proceeded against and liable for the offence under Section 138
of the Act – In the case of a partnership firm on the other hand,
when the offence has been proved against a partnership firm, the
firm per se would not be liable, but liability would inevitably extend
to the partners of the firm inasmuch as they would be personally,
jointly and severally liable with the firm even when the offence is
committed in the name of the partnership firm. [Para 9.10]
Case Law Cited
Bacha F. Guzdar v. CIT [1955] 1 SCR 876 : (1954) 2 SCC 563;
CIT v. R.M. Chidambaram Pillai [1977] 2 SCR 111 : (1977) 1 SCC
431 – relied on.
Aneeta Hada v. Godfather Travels & Tours (P) Ltd. [2012] 5 SCR
503 : (2012) 5 SCC 661 – held inapplicable.
State of Madras v. C.V. Parekh (1970) 3 SCC 491; Sheoratan
Agarwal v. State of M.P. [1985] 1 SCR 719 : (1984) 4 SCC 352;
Anil Hada v. Indian Acrylic Ltd. [1999] Supp. 5 SCR 6 : (2000)
1 SCC 1; U.P. Pollution Control Board v. Modi Distillery [1987] 3
SCR 798 : (1987) 3 SCC 684; Regional Director, Employees’ State
[2025] 7 S.C.R. 659
Dhanasingh Prabhu v. Chandrasekar & Another
Insurance Corporation v. Ramanuja Match Industries [1985] 2 SCR
119 : (1985) 1 SCC 218, Paras 4 and 9; Dena Bank v. Bikhabhai
Prabhudas Parekh and Co. [2000] 3 SCR 509 : (2000) 5 SCC 694;
G. Ramesh v. Kanike Harish Kumar Ujwal [2019] 5 SCR 751 :
(2020) 17 SCC 239; Dilip Hariramani v. Bank of Baroda [2022] 4
SCR 615 : 2022 SCC OnLine SC 579; Dulichand Laksminarayan v.
CIT [1956] 1 SCR 154 : AIR 1956 SC 354 – referred to.
Bhagwanji Morarji Goculdas v. Alembic Chemical Works Company
Ltd., AIR 1948 PC 100 – referred to.
Re: The Kondoli Tea Co. Ltd. (1886) ILR 13 Cal 43 – referred to.
Salomon v. Salomon & Co. Ltd. [1897] AC 22 (HL) – referred to.
Books and Periodicals Cited
N. Lindley, Lindley on Partnership (12th ed, Sweet & Maxwell,
2007); Chapter 2, Pollock & Mulla, The Indian Partnership Act,
8th Edn. Lexis Nexis Butterworths.
List of Acts
Negotiable Instrument Act, 1881; Companies Act, 1956; Companies
Act, 2013; Contract Act, 1872; Limited Liability Partnership Act,
2008; Bharatiya Nagarik Suraksha Sanhita, 2023; Code of Criminal
Procedure, 1973; Partnership Act, 1932; Code of Civil Procedure,
1908.
List of Keywords
Partnership firm; Name of Partnership firm; Partnership firm not
arraigned as an accused; Discharge of debt; Dishonour of cheque;
Liability of Partners; Criminal liability of partners; Section 138
of Negotiable Instrument Act, 1881; Section 141 of Negotiable
Instrument Act, 1881; Difference between a partnership firm and a
company; Separate legal entity; Offence committed by partnership
firm; Separate Legal Personality; Personally liable; Jointly and
severally liable.
Case Arising From
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.
2994 of 2025
From the Judgment and Order dated 26.02.2024 of the High Court
of Judicature at Madras in CRLOP No. 1533 of 2024
660 [2025] 7 S.C.R.
Supreme Court Reports
Appearances for Parties
Advs. for the Appellant:
C.B. Gururaj, Vishnu Unnikrishnan, Sabarish Subramanian.
Advs. for the Respondents:
S. Nagamuthu, Sr. Adv., M.P. Parthiban, Bilal Mansoor, Shreyas
Kaushal, S. Geyolin Selvam, Alagiri K, P.V.K. Deivendran.
Judgment / Order of the Supreme Court
Judgment
Nagarathna, J.
Leave granted.
Factual Background:
2. Appellant has preferred the present criminal appeal being aggrieved
by the final judgment and order of the Madras High Court dated
26.02.2024, whereby the High Court allowed the Criminal Original
Petition No.1533/2024 preferred by the respondents-accused and
thereby quashed Complaint bearing STC No.1106/2022 filed by
the appellant-complainant under Section 138 of the Negotiable
Instruments Act, 1881 (hereinafter “the Act”, for the sake of brevity)
against the respondents.
2.1 By virtue of a partnership deed, respondent Nos.1 and 2
are partners in the partnership firm ‘Mouriya Coirs’ and are
engaged in manufacturing and allied activities of coir products
in Periyamamarthupatti, Thenkumarapalayam Post, Pollachi,
Tamil Nadu.
2.2 From March 2019 to August 2019, the appellant, through banking
channels as well as by cash, advanced a loan of Rs.21,00,000/-
(Rupees Twenty-One Lakhs) to the respondents for business
purposes. In order to discharge the debt, on 01.02.2021,
respondent No.1-accused issued Cheque No.802077 for Rs.
21,00,000/-(Rupees Twenty-one Lakhs) in favour of the appellant-
complainant from Account No.4393002100113025 maintained
at Punjab National Bank, New Scheme Road, Pollachi, in the
name of the partnership firm. Notably, the cheque issued in the
[2025] 7 S.C.R. 661
Dhanasingh Prabhu v. Chandrasekar & Another
name of the firm was signed only by respondent No.1. However,
upon presentation of the said cheque on 02.02.2021, it was
returned as dishonoured vide cheque return memo by noting
that the partnership firm’s account has been frozen.
2.3 As required under Section 138 of the Act, the appellant-
complainant issued a statutory notice to the respondents on
01.03.2021 demanding discharge of the legally enforceable debt
within fifteen days. Subsequently on 23.04.2021, the appellant-
complainant filed complaint bearing STC No. 1106/2022 before
the Court of the Judicial Magistrate No.II, Pollachi (hereinafter
“trial Court”) contending that the respondents have committed
offences under Section 138 read with Section 142 of the Act.
2.4 Our attention has been drawn to the uncontested fact that neither
was the statutory notice issued to the partnership firm nor was
the firm arraigned as an accused in the complaint. Instead,
the statutory notice and the complaint mentioned the names
of both the respondents who are the partners to the said firm.
2.5 During the pendency of the complaint, the respondents preferred
Criminal Original Petition being Crl. O.P. No 1533/2024 under
Section 482 of the Code of Criminal Procedure, 1973 (hereinafter
“CrPC”) before the High Court to quash the complaint in STC
No. 1106 of 2022 pending on the file of the trial Court. By the
impugned order dated 26.02.2024, the High Court allowed the
Criminal Original Petition and proceeded to quash the complaint
in STC No. 1106 of 2022 on the ground that while the cheque
was issued on behalf of the partnership firm, no statutory notice
was issued to the partnership firm and it was also not arraigned
as an accused in the complaint. Therefore, according to the
High Court, as the rigours of Section 141 of the Act were not
complied with, the complaint was not maintainable as against
both the respondents, who were merely partners in the firm.
Hence, the complaint was quashed.
2.6 Being aggrieved, the appellant/complainant has preferred this
appeal.
Submissions:
3. Learned counsel for the appellant made the following submissions to
differentiate a partnership firm from other entities with limited liability,
662 [2025] 7 S.C.R.
Supreme Court Reports
such as a company, to support his contention that the partners of
a partnership firm are liable to be prosecuted individually sans the
partnership firm being arraigned as an accused or being issued notice
under Section 138 of the Act or as required under Section 141 of
the Act, in the following manner:
(i) Firstly, he submitted that unlike a company which is a separate
legal entity from its shareholders, a partnership is only a
compendious name for its partners. That the partners are jointly
and severally liable for the profit and loss of the partnership firm
and further, in a company, its shareholders have limited liability,
whereas in a partnership firm, the partners have unlimited liability.
(ii) Secondly, under Section 42 of the Partnership Act, 1932
(‘Partnership Act’ for short), subject to contract between the
partners, a partnership firm gets dissolved on events specified
in sub-sections (a) to (d) of Section 42.
(iii) Thirdly, a partnership firm cannot on its own create or enter
into any contract and that either those partner(s) authorized
by all the partners or all the partners of the firm, must execute
the contract. Further, subject to the partnership agreement, a
partnership firm is made party to a contract only at the time of
execution in order to make all the partners and the firm jointly
and severally liable to the contract.
(iv) Fourthly, though Order XXX Rules 1 and 2 of the Code of Civil
Procedure, 1908 (hereinafter “CPC”) allow for suing of partners
in the name of the firm, it is only a convenient method for
referring to the persons who constitute the firm at the time of
the accruing of the cause of action and that a decree in favour
of or against a firm, in the name of the firm, has the same effect
as a decree in favour of or against all the partners.
(v) Fifthly, unlike a limited liability partnership or a company,
an ordinary partnership is not a juristic person as such, and
that the real legal entity is the partners themselves. That in
an agreement involving a partnership firm, all partners in
their individual capacity ought to additionally be part of such
agreement as parties and execute it in their individual capacity.
This is because a partnership firm has no separate legal
existence of its own.
[2025] 7 S.C.R. 663
Dhanasingh Prabhu v. Chandrasekar & Another
3.1 On the above premise, learned counsel for the appellant sought
for setting aside of the impugned order and restoration of the
complaint on the file of the court of the learned Magistrate.
4. On the other hand, learned senior counsel for the respondents, Sri
S. Nagamuthu submitted that Section 141(1) of the Act does not
define the expression ‘company’, but Explanation (a) states that a
“company” means any body corporate and includes a firm or other
association of individuals. He submitted that the terms ‘association
of persons’ or ‘body of individuals’ have a legal connotation and
concern an entity having certain defined rights and duties as opposed
to a group of persons or body of individuals in the literal sense. In
this regard, the learned senior counsel submitted that a partnership
firm is not an association of persons in the literal sense. He referred
to Section 4 of the Partnership Act which defines the expression
‘partnership’ and the terms ‘partners’, ‘firm’, and ‘firm name’ to submit
that the expression ‘company’ in section 141 of the Act includes a
partnership firm by a legal fiction.
4.1 Learned senior counsel, Sri Nagamuthu, then referred to the
expression ‘person’ in Section 141 of the Act and submitted that
the said expression includes a company as well as a natural
person. Extending the above argument, he submitted that the
expression ‘person’ would also include a partnership firm, as
Section 141 of the Act deems a partnership firm to be a company.
That this deeming fiction is also evident in Explanation (b) to
Section 141 of the Act, which defines the expression “director”,
in relation to a firm, to mean a partner in the firm.
4.2 In view of the above arguments, learned senior counsel
submitted that a firm is deemed to be a company and if a firm
commits an offence under Section 138 of the Act, that firm
should also be added as an accused and found guilty. Further,
the partners of a firm should be arraigned as accused along
with the firm and such partners should be liable for punishment
vicariously/constructively for the offence committed by the firm.
4.3 Learned senior counsel contended that in the absence of the firm
being issued the statutory notice or arraigned as an accused in
the complaint, the same was not maintainable at all. Therefore,
the High Court rightly quashed the complaint and there is no
merit in this appeal.
664 [2025] 7 S.C.R.
Supreme Court Reports
Points for consideration:
5. On hearing the learned counsel for the appellant and the learned
senior counsel for the respondent, the points that arise for our
consideration revolve around the interpretation of the expressions,
company and director in the Explanation to Section 141 of the Act
in the context of the partners of a partnership firm. In other words,
the questions are:
(i) “Whether the High Court was right in dismissing the
complaint on the ground that the name of the partnership
firm was not mentioned in the statutory notice issued by
the appellant / complainant to the respondents under
Section 138 of the Act and was also not arraigned as
an accused in the complaint filed by the appellant /
complainant?
(ii) What order?”
6. Before we proceed further, it is necessary to refer to the judgments
in the following cases cited by the learned senior counsel, Sri S.
Nagamuthu:
6.1 Aneeta Hada vs. Godfather Travels & Tours (P) Ltd., (2012)
5 SCC 661 (“Aneeta Hada”) is a judgment of a three Judge
Bench of this Court wherein the core question considered was,
whether, in view of Section 141 of the Act, a company could have
been made liable for prosecution without being impleaded as an
accused, and whether a director of a company could have been
prosecuted for offences punishable under the provisions of the
Act without the company being arraigned as an accused. It is in
the aforesaid context that after referring to several judgments of
this Court, it was observed that the commission of an offence
by a company is an express condition precedent to attract the
vicarious liability of others such as directors or employees of a
company. Thus, the words “as well as the company” appearing
in the Section make it absolutely clear that when the company
could be prosecuted then only the persons mentioned in the
other categories could be vicariously liable for the offence
subject to the averments in the petition and proof thereof. This
is because a company is a separate juristic person and thus
the imperative for arraigning the company as an accused for
maintaining the prosecution under Section 141 of the Act. It was
[2025] 7 S.C.R. 665
Dhanasingh Prabhu v. Chandrasekar & Another
therefore held that it is only when the company is held to be
guilty of the offence under Section 138 read with Section 141
of the Act that the other categories of offenders could also be
proceeded against on the touchstone of the principle of vicarious
liability as the same has been mandated by Section 141 of
the Act itself. It is necessary to note that the company in the
aforesaid case was a private limited company incorporated
under the provisions of the Companies Act, 1956.
6.2 In the said case, the three Judge Bench followed the ratio of the
judgment in State of Madras vs. C.V. Parekh, (1970) 3 SCC
491 and opined that the judgment in Sheoratan Agarwal vs.
State of M.P., (1984) 4 SCC 352 did not lay down the correct
law and was therefore overruled. It was further observed that
the decision of this Court in Anil Hada vs. Indian Acrylic
Ltd., (2000) 1 SCC 1 was also not the correct law insofar as it
stated that the director or any other officer of a company can be
prosecuted without impleadment of the company. It was further
observed that the judgment of this Court in U.P. Pollution Control
Board vs. Modi Distillery, (1987) 3 SCC 684 was also restricted
to its own facts. In our view, the aforesaid decisions are not
applicable to the present case inasmuch as the said decisions
concerned the vicarious liability of the directors of a company
when the company itself was not prosecuted against or made
liable. We say so for the reason that the distinction between a
company and a partnership firm has to be borne in mind while
approaching these cases. Hence, the judgment of this Court
in Aneeta Hada is of no assistance to the respondent herein.
6.3 In Dilip Hariramani vs. Bank of Baroda, 2022 SCC OnLine
SC 579 (“Dilip Hariramani”), the issues raised were (i)
whether the appellant therein, being a non-signatory to the
dishonoured cheque, could have been convicted under Section
138 read with Section 141 of the Act on the basis that there
was vicarious criminal liability of a partner; and (ii) whether the
partner could be convicted and held to be vicariously liable when
the partnership firm was not made an accused and therefore
not tried for a primary or substantive offence. The facts of the
case are necessary to be discussed inasmuch as in this case
the respondent-Bank of Baroda had granted term loan on cash
credit facility to a partnership firm- M/s Global Packaging and
666 [2025] 7 S.C.R.
Supreme Court Reports
the repayment of the loan by the firm was through its authorized
signatory who had issued three cheques which were dishonoured
on presentation due to insufficient funds. A demand notice
was issued to the authorized signatory under Section 138 of
the Act by the bank which later filed the complaint against the
authorized signatory as well as the appellant therein but the
firm was not made an accused. The authorized signatory of the
cheques of the appellant therein was shown as a partner of the
firm. It was contended that there was no assertion or statement
in the complaint made to establish the vicarious liability of the
appellant therein. Both the accused were convicted by the trial
court and sentenced to imprisonment for six months and asked
to pay compensation under Section 357 (3) of the CrPC and
in default to suffer additional imprisonment for one month. The
appeal preferred before the District and Sessions Court was
allowed in part by reducing the sentence till the rising of the
court and enhancing the compensation amount to Rs. One
Crore Twenty Lakhs with the stipulation that both the accused
would suffer additional imprisonment of three months in case
of failure to pay. The accused challenged the judgment before
the Chhattisgarh High Court which dismissed the appeal and
hence the appeal was preferred before this Court. This Court
noted the following facts in the said case:
i. The Demand Notice issued on 04.11.2015 by the bank
through its Bank Manager was served solely to the
authorized signatory of the firm.
ii. The complaint dated 07.12.2015 under Section 138 of the
Act was made against the authorized signatory as well as
the appellant therein.
iii. The partnership firm was not made an accused or ever
summoned to be tried for the offence.
6.4 After referring to Aneeta Hada, this Court considered Section
141 of the Act which imposes vicarious liability by a deeming
fiction which presupposes and requires the commission of the
offence by the company or firm. It was observed thus:
“14. … unless the company or firm has committed
the offence as a principal accused, the person
[2025] 7 S.C.R. 667
Dhanasingh Prabhu v. Chandrasekar & Another
mentioned in sub-section (1) or (2) would not be liable
and convicted as vicariously liable. Section 141 of
the Act extends vicarious criminal liability to officers
associated with the company or firm when the one
of the twin requirements of Section 141 has been
satisfied, which person(s) then, by deeming fiction,
is made vicariously liable and punished. However,
such vicarious liability arises only when the company
or firm commit the offence as a primary offender”.
(underlining by us)
In the above context, the appeal was allowed and the conviction
of the appellant therein was set aside.
6.5 The reason as to why relief was granted by this Court in
Dilip Hariramani was because it was observed that the
partnership firm was not said to have committed the offence and
was not made the principal accused. In such a circumstance,
there could be no vicarious criminal liability to the officers
associated with the company or firm. It is necessary to note
that the complainant bank in the aforesaid case had not served
the notice to the appellant therein but it was served only on the
authorized signatory of the firm. Hence, relief was granted by
this Court to the appellant therein. On the other hand, in the
instant case, the notice was sent by the complainant to both
the partners of the firm.
6.6 We are of the view that having regard to the distinct facts in the
aforesaid case, relief was granted by this Court but the present
case cannot be decided on the basis of the aforesaid judgment.
The three significant facts noted in the aforesaid judgment must
be contrasted with the facts which arise in the present case,
which are as under:
i. Notice of the complainant was not issued only to one
partner or only to the authorized signatory of the partnership
firm. It was issued to both partners in the present case.
ii. The cheque was issued in the name of partnership firm
“Mouriya Coirs”. However both the partners were issued
notice by the complainant which was not so in the aforesaid
668 [2025] 7 S.C.R.
Supreme Court Reports
case, although the partnership firm was not issued any
statutory notice.
iii. The complaint has been made against both the partners
even though the firm has not been made an accused in
the complaint in the instant case.
6.7 In fact, in an earlier judgement G. Ramesh vs. Kanike Harish
Kumar Ujwal, (2020) 17 SCC 239 which is also a judgment
of a two Judge Bench of this Court, it was noted from the
complaint considered in the said case that the same contained
a sufficient description of (i) nature of the partnership; (ii) the
business which was being carried out; and (iii) role of each of
the accused in the conduct of the business and specifically in
relation to the transaction which took place with the complainant.
In the averments, the accused had been referred to in the
plural sense. This Court observed that Section 141 uses the
expression “company” so as to include a firm or association
of a persons. That the first accused in the said case was a
partnership firm of which the remaining two accused were the
partners which fact had been missed by the High Court and
therefore the appeal was allowed.
Paragraphs 11 and 12 of the judgment read as under:
“11. In terms of the explanation to Section 141, the
expression “company” has been defined to mean
any body corporate and to include a firm or other
association of individuals. Sub-section (1) of Section
141 postulates that where an offence is committed
under Section 138 by a company, the company as
well as every person who, at the time when the
offence was committed, was in charge of and was
responsible to the company for the conduct of the
business shall be deemed to be guilty of the offence.
12. In determining as to whether the requirements of
the above provision have been fulfilled, it is necessary
to bear in mind the principle of law that a partnership
is a compendious expression to denote the partners
who comprise of the firm. By the deeming fiction in
Explanation (a) the expression company is defined
to include a firm.”
[2025] 7 S.C.R. 669
Dhanasingh Prabhu v. Chandrasekar & Another
6.8 While holding that Section 141 is a deeming provision, it was
also observed that a partnership is a compendious expression to
denote the partners who comprise the firm which means that a
firm without a reference to its partners has no juristic identity in
law. By a deeming fiction, in Explanation (a) to Section 141, the
expression “company” has been defined to include a firm. Since
the High Court had lost sight of the fact that a partnership firm
has to be read within the meaning of Section 141 which uses
the expression “company”, the appeal filed by the complainant
therein was allowed.
6.9 On considering the aforesaid judgments, we observe that even
if we have to come to the conclusion that the juristic entity i.e.,
the partnership firm is the primary accused in the instant case it
would be necessary for us to also state that such a juristic entity,
namely, a partnership firm is not distinct from the partners who
comprise the partnership. In other words, if the complainant had
proceeded only against the partnership firm and not the partners
it possibly could have been held that the partnership firm in the
absence of its partners is not a complete juristic entity which
can be recognised in law and therefore cannot be proceeded
against. On the other hand, in the instant case the complainant
has proceeded against the two partners. The complainant is
aware of the fact that the cheque has been issued in the name
of the partnership firm “Mouriya Coirs” and has been signed by
one of the partners. The complainant has proceeded against
the partners only without arraigning the partnership firm as an
accused. It is necessary to reiterate that a partnership firm in
the absence of its partners cannot at all be considered to be a
juristic entity in law. On the other hand, the partners who form
a partnership firm are personally liable in law along with the
partnership firm. It is a case of joint and several liability and
not vicarious liability as such. Therefore, if the complainant
herein has proceeded only against the partners and not against
the partnership firm, we think it is not something which would
go to the root of the matter so as to dismiss the complaint on
that ground. Rather, opportunity could have been given to the
complainant to implead the partnership firm also as an accused
in the complaint even though no notice was sent specifically in
the name of the partnership.
670 [2025] 7 S.C.R.
Supreme Court Reports
6.10 Alternatively, notice to the partners/accused could have been
construed as notice to the partnership firm also. We say so for
the reason that unlike a company which is a separate juristic
entity from its directors thereof, a partnership firm comprises of
its partners who are the persons directly liable on behalf of the
partnership firm and by themselves. Therefore, a partnership
firm, in the absence of the partners being arraigned as accused
would not serve the purpose of the case and would be contrary
to law. On the other hand, even in the absence of making a
partnership firm an accused in the complaint, the partners being
made the accused would be sufficient to make them liable
inasmuch as the partnership firm without the partners is of no
consequence and is not recognised in law. This is because in
the case of a partnership firm, the said juristic entity is always
understood as a compendious term namely, the partnership firm
along with its partners. Therefore, if the appellant-complainant
had proceeded only against the partnership firm and not its
partners then possibly the respondents would have been right
in contending that the complaint was not maintainable but
here the case is reversed. The complainant herein has not
arraigned the firm but has arraigned the partners of the firm
as accused and has also issued notice to them; therefore,
we find that the defect, if any, is not significant or incurable
in these circumstances. Permission is therefore to be granted
to the complainant to arraign the partnership firm also as an
accused in the complaint. Moreover, the cheque was issued
in the name of the firm and signed by one of the partners,
for and on behalf of the other also, therefore, the liability is
deemed to be on both the partners of the firm.
Hence permission is given to arraign the partnership firm as
an accused having regard to the peculiar characteristics of
a partnership firm and a company on which aspect we will
discuss further.
Difference between a partnership firm and a company:
7. Predominantly a product of judge-made law, the law of partnership
was first codified in India by the Indian Partnership Act, 1932. Prior
to the coming in force of the Partnership Act, Chapter XI of the
Indian Contract Act, 1872 (hereinafter ‘ICA’) defined a partnership,
[2025] 7 S.C.R. 671
Dhanasingh Prabhu v. Chandrasekar & Another
outlined the rights and obligations of partners and provided various
provisions governing the operation and existence of partnerships.
Section 239 of ICA defined a partnership as:
“Partnership is the relation which subsists between persons
who have agreed to combine their property, labour or skill
in some business and to share the profits thereof.”
7.1 The Partnership Act was promulgated as it was considered
expedient to define and amend the law relating to partnership.
As it stands today, partnership law is codified in the Partnership
Act and the Limited Liability Partnership Act, 2008. It is trite
that these legislations, like all codifications of partnership law
in common law, are based on the law of agency.
7.2 Section 4 of the Partnership Act defines a partnership, partner,
firm and firm name as follows:
“4. Definition of “partnership”, “partner”, “firm”
and “firm name”.—
“Partnership” is the relation between persons who
have agreed to share the profits of a business carried
on by all or any of them acting for all.
Persons who have entered into partnership with
one another are called individually “partners” and
collectively “a firm”, and the name under which their
business is carried on is called the “firm name”.
(underlining by us)
7.3 The definition in Section 4 of the Partnership Act is a departure
from the erstwhile definition of partnership in Section 239 of
ICA. A significant departure, inter alia, is the insertion of “acting
for all” which brings in the concept of agency. An amendment
of substantial import carried out by the Special Committee was
with the intent to elucidate clearly the fundamental principle
that the partners when carrying on the business of the firm are
agents as well as principals.1 Pollock & Mulla also notes the
salient distinction between the meanings of ‘partnership’ and
1 Chapter 2, Pollock & Mulla, The Indian Partnership Act, 8th Edn. Lexis Nexis Butterworths.
672 [2025] 7 S.C.R.
Supreme Court Reports
‘firm’. Tracing from Section 4, Pollock & Mulla clarifies that the
word “partnership” is used throughout the Partnership Act in
the defined sense of a relationship and where the partners are
referred to collectively, the word “firm” is used. It is pertinent to
recall that Explanation to Section 141 of the Act provides that
for the purposes of that section, a company includes a firm or
other association of individuals. Nevertheless, the distinction
is crucial because it lends credence to the interpretation that
reference in Section 141 is as much to the partners of the firm
as it is to directors of a company.
7.4 According to Pollock and Mulla, 8th Edition, the definition of
partnership in Section 4 of the Partnership Act contains three
elements; (i) there must be an agreement entered into by all
the persons concerned; (ii) the agreement must be to share the
profits of a business; and (iii) the business must be carried on
by all or any of the persons concerned, acting for all. All these
elements must be present before a group of associates can
be held to be partners. These three elements may appear to
overlap, but they are nevertheless distinct. The third element
shows that the persons of the group who conduct the business
do so as agents for all the persons in the group and are therefore
liable to account for all. This Court while elaborating the third
essential element has held that the position of a partner in the
firm is thus not of a master and a servant or employer and
employee which concept involves an element of subordination,
but that of equality. It may be that a partner is being paid some
remuneration for any special attention which he devotes but that
would not involve any change of status or bring him within the
definition of employee, vide Regional Director, Employees’
State Insurance Corporation vs. Ramanuja Match Industries,
(1985) 1 SCC 218, Paras 4 and 9.
7.5 In Section 4 of the Partnership Act, it is clearly stated that
persons who have entered into partnership with one another
are individually called partners and collectively a firm and the
name under which their business is carried out is called a firm
name. Thus, while partnership is the relation between persons
who have agreed to share profits of the business carried on
by all or any of them acting for all, the persons are collectively
called a firm and the name of the firm is the firm name which is
[2025] 7 S.C.R. 673
Dhanasingh Prabhu v. Chandrasekar & Another
a compendious or collective term of partnership of the partners.
The said Section also clearly implies that a firm or partnership
is not a legal entity, separate and distinct from its partners.
7.6 As already stated above, the firm is a compendious term not
distinct of the individuals who compose the firm. In other words,
partnership is merely a convenient name to carry out business
by partners. Thus, a firm is not an entity of persons in law but
is merely an association of individuals and firm name is only
a collective name of those individuals who constitute the firm.
In other words, the firm name is merely an expression, only
a compendious mode of designating the persons who have
agreed to carry on business in partnership.
Thus, a firm may not be a legal entity in the sense of a corporation
or a company incorporated under the Companies Act, 1956 or
2013, but it is still an existing concern where business is done
by a number of persons in partnership.
7.7 Insofar as the statutory definition of a company is concerned,
the legislature has found it particularly cumbersome to provide
a descriptive and inclusive definition. Perhaps this is why the
Parliament in its wisdom defined ‘company’ in Section 2(2) of the
Companies Act, 2013 (‘Companies Act’) not by enumerating the
essential features of a company but “as a company incorporated
under this Act or under any previous company law”.2 Keeping
aside the omnibus statutory definition, several jurists have
attempted to outline a definition of a company for doctrinal
and precedential analysis. Lindley, a Jurist and Judge defined
a company in the following terms:
“A company is an association of many persons who
contribute money or monies worth to a common
stock and employed in some trade or business and
who share the profit and loss arising therefrom. The
common stock so contributed is denoted in money
and is the capital of the company. The persons who
contribute to it or to whom it pertains are members.
The proportion of capital to which each member
2 Section 2(2), Companies Act, 2013
674 [2025] 7 S.C.R.
Supreme Court Reports
is entitled is his share. The shares are always
transferable although the right to transfer is often
more or less restricted.”3
Section 9 of the Companies Act, 2013 provides as follows:
“9. Effect of registration
From the date of incorporation mentioned in the
certificate of incorporation, such subscribers to the
memorandum and all other persons, as may, from
time to time, become members of the company, shall
be a body corporate by the name contained in the
memorandum, capable of exercising all the functions
of an incorporated company under this Act and having
perpetual succession with power to acquire, hold and
dispose of property, both movable and immovable,
tangible and intangible, to contract and to sue and
be sued, by the said name.”
7.8 While modern legislations and instruments have outlined and
carved out more complex features, rights and obligations of a
‘company’, the fundamentals of Lindley’s definition continue
to hold ground. The salient distinctions between a company
and a partnership, including the rights and obligations flowing
therefrom which are fundamental to common law, as well as
the relevant statutes promulgated by the Parliament could be
discussed at this stage.
Separate Legal Personality:
7.9 A partnership firm, unlike a company registered under the
Companies Act, does not possess a separate legal personality
and the firm’s name is only a compendious reference for
describing its partners. This fundamental distinction between
a firm and a company rests on the premise that the company
is separate from its shareholders. In that context, the words of
Lord Macnaghten in Salomon vs. Salomon & Co. Ltd., [1897]
AC 22 (HL), (“Salomon”) are instructive:
3 N. Lindley, Lindley on Partnership (12th ed, Sweet & Maxwell, 2007)
[2025] 7 S.C.R. 675
Dhanasingh Prabhu v. Chandrasekar & Another
“the company is at law a different person altogether
from the subscribers......; and though it may be that
after incorporation the business is precisely the same
as it was before and the same persons are managers
and the same hands receive the proceeds, the
company is not in law, the agent of the subscribers or
trustee for them. Nor are the subscribers as members
liable, in any shape or form, except to the extent and
in the manner provided by the Act.”
7.10 This distinction does not, however, continue to hold true for a
partnership firm. In the seminal case of Bacha F. Guzdar vs.
CIT, (1954) 2 SCC 563, this Court had an opportunity to briefly
address this distinction between a partnership firm and a
company, wherein it was observed thus:
“13. It was argued that the position of shareholders
in a company is analogous to that of partners inter
se. This analogy is wholly inaccurate. Partnership is
merely an association of persons for carrying on the
business of partnership and in law the firm name is
a compendious method of describing the partners.
Such is, however, not the case of a company which
stands as a separate juristic entity distinct from the
shareholders.”
7.11 The partnership name being only a compendious method of
describing the partners, it stands to reason that a reference
to the partners in their capacity as partners of the firm will be
sufficient to impute liability on the partners themselves, whereas
directors of a company are made liable vicariously through
the company, upon whom falls the primary liability. Thus, the
partners and the partnership firm are one and the same. Unlike
a company, a partnership firm has no independent corporate
existence and has no distinct legal persona independent of its
partners. Similarly, the partners of a firm are co-owners of the
property of the firm unlike shareholders in a company who are
not co-owners of the property of the company. This principle was
also explained by the Calcutta High Court in Re: The Kondoli
Tea Co. Ltd., (1886) ILR 13 Cal 43 where the transferors of a
tea estate claimed that they were eligible to claim exemption
676 [2025] 7 S.C.R.
Supreme Court Reports
from payment of ad valorem duty because the transferee
was a company in which they themselves were shareholders.
Negativing this contention, it was held that the company was
a separate person and the transfer of the tea estate was a
conveyance and in substance, a transfer to another person.
7.12 Although the course of jurisprudential pronouncements led by
the dictum of Privy Council in Bhagwanji Morarji Goculdas vs.
Alembic Chemical Works Company Ltd., AIR 1948 PC 100
(“Bhagwanji Morarji Goculdas”), intermittently understood
that Indian law – particularly, the Partnership Act – which has
proceeded beyond English law and attributed some degree
of personality to a partnership in accordance with the law in
Scotland, a clarification was provided by this Court through
its decision in Dulichand Laksminarayan vs. CIT, AIR 1956
SC 354 (“Dulichand”), which settled the position. It was held
therein that any treatment as a separate unit for purposes
of accommodating mercantile practices and commercial
convenience did not obliterate the fundamental principle in law
that a partnership firm is not a legal person. When this Court
acknowledged in Dulichand that Indian law had relaxed its
rigid notions to extend limited personality to a firm, this Court
referred to the gradual relaxation of procedure to facilitate
commercial convenience. For instance, it was explained that
merchants show a firm as a debtor to each partner for what is
brought into the common stock and each partner is shown as
a debtor to the firm for all that he takes out of that stock. As
traditionally, under the common law, a firm, not being a legal
entity, could not sue or be sued in the firm name or sue or be
sued by its own partner, for one cannot sue oneself, the rigid
law of procedure was relaxed to give way to considerations
of commercial convenience and a firm was permitted to sue
or be sued in the firm name much like a corporate body. This
Court further noted how Order XXX Rule 9 of the CPC allowed
a firm to sue or be sued by another firm having some common
partners or even to sue or be sued by one or more of its own
partners, as if the firm is an entity distinct from its partners.
7.13 Similarly, it was explained that in taking partnership accounts
and in administering partnership assets, the law has to some
extent, adopted the mercantile view and the liabilities of the
[2025] 7 S.C.R. 677
Dhanasingh Prabhu v. Chandrasekar & Another
firm are regarded as the liabilities of the partners only in case
they cannot be met and discharged by the firm out of its assets.
7.14 Most pertinent is that despite noting these relaxations in the rigid
rules of procedure, this Court observed in Dulichand that ‘a firm
name is merely an expression, only a compendious mode of
designating the persons who have agreed to carry on business
in partnership’. Any relaxations, either aforementioned or not,
borne out of commercial convenience or otherwise, do not
deviate from the settled position that the name of a partnership
firm is a convenient manner of referring to its partners.
7.15 We need not further dilate in extenso on this subject than to
simply revisit the following erudite words of Krishna Iyer, J. in
CIT vs. R.M. Chidambaram Pillai, (1977) 1 SCC 431 which
also engage and follow this Court’s view in Dulichand:
“5. First principles plus the bare text of the statute
furnish the best guidelight to understanding the
message and- meaning of the provisions of law.
Thereafter, the sophisticated exercises in precedents
and booklore. Here the first thing that we must
grasp is that a firm is not a legal person even
though it has some attributes of personality.
Partnership is a certain relation between
persons, the product of agreement to share
the profits of a business. “Firm” is a collective
noun, a compendious expression to designate
an entity, not a person. In income tax law a firm
is a unit of assessment, by special provisions, but
is not a full person; which leads to the next step
that since a contract of employment requires two
distinct persons viz. the employer and the employee,
there cannot be a contract of service, in strict law,
between a firm and one of its partners. So that
any agreement for remuneration of a partner for
taking part in the conduct of the business must
be regarded as portion of the profits being made
over as a reward for the human capital brought in.
Section 13 of the Partnership Act brings into focus
this basis of partnership business.
xxx
678 [2025] 7 S.C.R.
Supreme Court Reports
16. The Indian law of partnership is substantially the
same and the reference in counsel›s submissions
to the Scottish view of a firm being a legal entity
is neither here nor there. Primarily our study must
zero on the Indian Partnership Act and not borrow
courage from foreign systems. In Bhagwanji Morarji
Gokuldas [AIR 1948 PC 100 : (1948) 18 Comp Cas
205, 209] the Privy Council ruled that the Indian
Partnership Act went beyond the English Partnership
Act, 1890, the law in India attributing personality to
a partnership being more in accordance with the
law of Scotland. Even so, Sir John Beaumont, in
that case, pointed out that the Indian Act did not
make a firm a corporate body. Moreover, we are
not persuaded by that ruling of the Privy Council,
particularly since a pronouncement of this Court in
Dulichand [Dulichand Laksminarayan v. CIT, AIR
1956 SC 354 : 1956 SCR 154 : (1956) 2 ITR 535]
strikes a contrary note. We quote:
“In some systems of law this separate
personality of a firm apart from its
members has received full and formal
recognition as, for instance, in Scotland.
That is, however, not the English common
law conception of a firm. English lawyers
do not recognise a firm as an entity distinct
from the members composing it. Our
partnership law is based on English law
and we have also adopted the notions of
English lawyers as regards a partnership
firm.”
The life of the Indian law of partnership depends
on its own terms although habitually courts, as a
hangover of the past, have been referring to the
English law on the point. The matter is concluded
by the further observations of this Court:
“It is clear from the foregoing discussion
that the law, English as well as Indian,
[2025] 7 S.C.R. 679
Dhanasingh Prabhu v. Chandrasekar & Another
has, for some specific purposes, some
of which are referred to above, relaxed
its rigid notions and extended a limited
personality to a firm. Nevertheless, the
general concept of a partnership,
firmly established in both systems of
law, still is that a firm is not an entity
or ‘person’ in law but is merely an
association of individuals and a firm
name is only a collective name of those
individuals who constitute the firm.
In other words, a firm name is merely
an expression, only a compendious
mode of designating the persons who
have agreed to carry on business in
partnership. According to the principles
of English jurisprudence, which we have
adopted, for the purposes of determining
legal rights ‘there is no such thing as a firm
known to the law as was said by James,
L.J., in Ex parte Corbett : In re Shand
[(1880) 14 Ch D 122, 126 : 42 LT 164 :
28 WR 569] . In these circumstances to
import the definition of the word ‘person’
occurring in Section 3(42) of the General
Clauses Act, 1897, into Section 4 of the
Indian Partnership Act will, according
to lawyers, English or Indian, be totally
repugnant to the subject of partnership
law as they know and understand it to be.”
In Narayanappa [Addanki Narayanappa v. Bhaskara
Krishtappa, AIR 1966 SC 1300, 1303 : (1966) 3 SCR
400] the view taken by this Court accords with the
position above stated.”
(emphasis supplied)
7.16 Finally, on this question, Krishna Iyer, J. speaking for this Court
noted that under Indian law, a partnership is only a collective
of separate persons and is not a legal person in itself.
680 [2025] 7 S.C.R.
Supreme Court Reports
Perpetual Succession:
7.17 As a logical corollary of distinct and separate juristic identity,
an incorporated company also has perpetual succession
i.e., perpetual existence agnostic of transfer of shares. A
company does not ordinarily extinguish because of change
in shareholding. On the other hand, a partnership firm’s
fundamental identity is contingent on the partners and
undergoes a change with a change in partners, subject to
contract. Section 42(c) of the Partnership Act provides that
subject to contract between the partners, a firm is dissolved by
the death of a partner. Per contra, the position of a company
could not be made clearer than by the following illustration in
Professor Gower’s Principles of Modern Company Law (3rd
Edn. 1969), at p.76:
“During the war all the members of one private
company, while in general meeting, were killed by
a bomb. But the company survived; not even a
hydrogen bomb could have destroyed it.”
7.18 Although one might argue that from the perspective of a
merchant or even income tax law, a firm appears to continue
irrespective of the entrance and exit of partners, Lindley
explained the orthodox legal view, which continues to hold
ground, on partnership, in the following words:
“The law, ignoring the firm, looks to the partners
composing it; any change amongst them destroys
the identity of the firm; what is called the property
of the firm is their property, and what are called
the debts and liabilities of the firm are their debts
and their liabilities. In point of law, a partner may
be the debtor or the creditor of his co-partners, but
he cannot be either debtor or creditor of a firm of
which he is himself a member.”
(Underlining by us)
Liability of Partners:
7.19 The liability of partners for the debts of the business is
unlimited and they are jointly and severally liable for all
[2025] 7 S.C.R. 681
Dhanasingh Prabhu v. Chandrasekar & Another
business obligations of the partnership firm. Sections 25 and
26 of the Partnership Act are relevant in this regard, which
are reproduced as under:
“25. Liability of a partner for acts of the firm.—
Every partner is liable, jointly with all the other
partners and also severally, for all acts of the firm
done while he is a partner.
26. Liability of the firm for wrongful acts of a
partner.—Where, by the wrongful act or omission
of a partner acting in the ordinary course of the
business of a firm, or with the authority of his
partners, loss or injury is caused to any third party,
or any penalty is incurred, the firm is liable therefor
to the same extent as the partner.”
Section 25 provides that every partner is liable jointly with all
the other partners and also severally for all acts of the firm
done by the partner. Since a firm is not a legal entity but only a
collective name for all the partners, it does not have any legal
existence apart from its partners. Therefore, any liability of a
firm has the same effect of a liability against the partners. This
is because, the partners remain liable jointly and severally for
all acts of the firm, vide Dena Bank vs. Bikhabhai Prabhudas
Parekh and Co., (2000) 5 SCC 694.
7.20 Moreover, the partners of a firm have unlimited liability to the
creditors of the firm. This is as opposed to a limited company
or a limited liability partnership, wherein the liability of the
directors or the shareholders is to the extent of their share in
the limited company or limited liability partnership and limited
to the nominal value of the shares held by them or the amount
guaranteed by the shareholder when it comes to a company.
Thus, the debt of the firm is the personal debt of a partner
and the debt of the firm has to be incurred by each partner
as a financial personal liability.
7.21 Insofar as criminal liability is concerned, once it is established
that an illegal act has been committed by the firm or its
partners, then the partners will be jointly liable for it. Moreover,
the act constituting an offence will also have to be decided
with reference to the statute creating such an offence i.e.
682 [2025] 7 S.C.R.
Supreme Court Reports
the Negotiable Instruments Act, which is the Act under
consideration. When Section 25 of the Partnership Act is read
together with Section 145 of the Act, in the context of dishonour
of a cheque, the partner of a firm who is also liable jointly with
a firm, can however rebut the statutory presumption.
7.22 Conversely, Section 26 states that where by the wrongful act
or omission of a partner, acting in the ordinary course of the
business of a firm, or with the authority of his partners, loss
or injuries are caused to any third party, or any penalties are
incurred, the firm is liable therefore to the same extent as the
partner. The liability of the firm for acts done by the partner
would arise when such acts are done in the ordinary course
of the business of the firm.
7.23 Moreover, since the firm by itself cannot transact any business,
if a partner of the firm commits any breach, all the partners
would become liable for the consequent penalties, just as
the firm would be liable. Further, if a penalty is imposed on a
partnership firm for contravention of a statute, it amounts to
levy of penalty on the partners also and there is no separate or
independent penalty on the partners for the said contravention.
7.24 However, the liability of a shareholder in a company is limited
to the nominal value of shares held by them or the amount
guaranteed by the shareholder. The separate property of the
shareholder is beyond a creditor seeking to enforce its dues
against the company.
Firm Name:
8. It is therefore appropriate to remind ourselves that a partnership
firm, unlike a company registered under the Indian Companies Act
or a limited liability partnership registered under the Limited Liability
Partnership Act, 2008, is not a distinct legal entity and is only a
compendium of its partners. Even the registration of a firm does not
mean that it becomes a distinct legal entity like a company. Hence,
the partners of a firm are co-owners of the property of the firm, unlike
shareholders in a company who are not co-owners of the property
of the company.
8.1 According to Lindley and Banks on Partnership, 21st Edition, it
is important to identify the precise significance of a firm name
[2025] 7 S.C.R. 683
Dhanasingh Prabhu v. Chandrasekar & Another
since it represents an attribute which tends to encourage the
commercial rather than the legal view of a firm. According to
Lindley, “……the name under which a firm carries on business
is in point of law a conventional name applicable. Only to the
persons who on each particular occasion when the name is
used, are members of the firm.”
8.2 The firm name is thus a convenient method of describing a
group of persons associated together in business at a certain
point of time: no more or no less. If a number of people carry
on business under such name or style, anything which they
may do in that name or style will be just as effective as if their
individual names had been used. An obvious example of this
is the use of firm name on bills of exchange and promissory
notes.
9. The aforesaid principles have to be applied to Sections 138 and 141
of the Act. For immediate reference, the said sections are extracted
as under:
“138. Dishonour of cheque for insufficiency, etc., of
funds in the account. — Where any cheque drawn by
a person on an account maintained by him with a banker
for payment of any amount of money to another person
from out of that account for the discharge, in whole or in
part, of any debt or other liability, is returned by the bank
unpaid, either because of the amount of money standing
to the credit of that account is insufficient to honour the
cheque or that it exceeds the amount arranged to be paid
from that account by an agreement made with that bank,
such person shall be deemed to have committed an offence
and shall, without prejudice to any other provision of this
Act, be punished with imprisonment for a term which may
extend to two years, or with fine which may extend to twice
the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply
unless—
(a) the cheque has been presented to the bank within
a period of six months* from the date on which it is
drawn or within the period of its validity, whichever
is earlier;
684 [2025] 7 S.C.R.
Supreme Court Reports
(b) the payee or the holder in due course of the cheque,
as the case may be, makes a demand for the payment
of the said amount of money by giving a notice in
writing, to the drawer of the cheque, within thirty days
of the receipt of information by him from the bank
regarding the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment
of the said amount of money to the payee or as
the case may be, to the holder in due course of
the cheque within fifteen days of the receipt of the
said notice.
Explanation.—For the purposes of this section, “debt or
other liability” means a legally enforceable debt or other
liability.
xxx
141. Offences by companies.—
(1) If the person committing an offence under Section 138
is a company, every person who, at the time the offence
was committed, was in charge of, and was responsible
to the company for the conduct of the business of the
company, as well as the company, shall be deemed to be
guilty of the offence and shall be liable to be proceeded
against and punished accordingly:
Provided that nothing contained in this sub-section shall
render any person liable to punishment if he proves that
the offence was committed without his knowledge, or
that he had exercised all due diligence to prevent the
commission of such offence.
Provided further that where a person is nominated as
a Director of a company by virtue of his holding any
office or employment in the Central Government or State
Government or a financial corporation owned or controlled
by the Central Government or the State Government, as
the case may be, he shall not be liable for prosecution
under this chapter.
[2025] 7 S.C.R. 685
Dhanasingh Prabhu v. Chandrasekar & Another
(2) Notwithstanding anything contained in sub-section (1),
where any offence under this Act has been committed
by a company and it is proved that the offence has
been committed with the consent or connivance of, or is
attributable to, any neglect on the part of, any director,
manager, secretary or other officer of the company, such
director, manager, secretary or other officer shall also be
deemed to be guilty of that offence and shall be liable to
be proceeded against and punished accordingly.
Explanation.—For the purposes of this section,—
(a) “company” means any body corporate and includes
a firm or other association of individuals; and
(b) “director”, in relation to a firm, means a partner in
the firm.”
9.1 Section 138 of the Act creates an offence for dishonour of
a cheque for, inter alia, insufficiency of funds in the account
by a deeming fiction. The complainant who is a victim of the
dishonour of cheque issued by an accused has the right to
file a private complaint in terms of Section 200 of the CrPC,
(equivalent to Section 223 of the Bharatiya Nagarik Suraksha
Sanhita, 2023 (for short, “BNSS”)). When the said offence is
proved against an individual/natural person, he is punished with
imprisonment for a term which may be extended to two years or
with fine which may extend to twice the amount of the cheque.
But when such an offence is committed by a company, which
is an artificial juristic entity, Section 141 of the Act applies. The
said Section states that if the person committing an offence
under Section 138 of the Act is a company, every person
who at the time the offence was committed was in charge of,
and was responsible to, the company for the conduct of the
business of the company, as well as the company, shall be
deemed to be guilty of the offence and shall be liable to be
proceeded against and punished accordingly. Since an artificial
juristic entity such as a company cannot be punished with
imprisonment, by a deeming fiction certain persons associated
with such an artificial juristic entity are deemed to be guilty
of the offence and made liable to be proceeded against and
686 [2025] 7 S.C.R.
Supreme Court Reports
punished accordingly. This is an instance of vicarious liability
on every person who, at the time the offence was committed,
was in charge of, and was responsible to the company for the
conduct of the business of the company. This is for the reason
that a company is a separate entity vis-à-vis its shareholders
or those who are in charge of the conduct of its business since
a company is an artificial juristic entity. Thus, the liability would
be on the company as well as on the category of persons
mentioned above. Such a person must be both in charge of,
as well as responsible to, the company for the conduct of the
business of the company. However, the aforesaid category of
person who is deemed to be guilty of the offence along with
the company, can escape punishment (i) if he can prove that
the offence was committed without his knowledge; or (ii) that
he had exercised all due diligence to prevent the commission
of such an offence. Hence, by way of a proviso to sub-section
(1) to Section 141 of the Act, two defences are provided for the
category of persons named in sub-section (1) of Section 141.
9.2 The second proviso to sub-section (1) of Section 141 is an
exception for a person who is a director of the company who
shall not be liable for prosecution under Chapter XVII of the Act.
The second proviso is not relevant for the purpose of this case
as the said proviso refers to ex-officio directors representing
the Central Government or state governments or a financial
corporation owned or controlled by the Central Government
or the state government, as the case may be.
9.3 Sub-section (2) of Section 141 begins with a non-obstante
clause. It extends the scope of categories of persons associated
with the company who could also be deemed to be guilty of an
offence under Section 138 of the Act and shall be liable to be
proceeded against and punished accordingly. Sub-section (2) of
Section 141 states that where the offence has been committed by
a company and it is proved that the offence has been committed
with the (i) consent; or (ii) connivance of; or (iii) is attributable
to, any neglect on the part of any director, manager, secretary
or other officer of the company, such aforesaid categories of
persons shall also be deemed to be guilty, proceeded against
and punished accordingly. While sub-section (1) of Section 141
[2025] 7 S.C.R. 687
Dhanasingh Prabhu v. Chandrasekar & Another
restricts the category of persons who would be deemed
to be liable when the offence is committed by a company,
sub-section (2) of Section 141 extends the scope of liability
to further categories of persons namely, director, manager,
secretary or other officer of the company to be made liable
provided there is proof that such category of persons associated
with the company had committed the offence with the consent
or connivance of, or due to any negligence on their part. The
expression “shall also be deemed to be guilty” in sub-section (2)
of Section 141 of the Act would imply that the object and
purpose of the said provision is to encompass the categories
of persons mentioned in that sub-section owing to a criminal
intent or negligence attributable on their part.
9.4 Thus, while under sub-section (1) of Section 141 of the Act,
the criminal liability on the category of persons named in the
said sub-section is owing to the position that person holds in
the company, when the company is said to have committed
the offence under Section 138 and therefore the deeming
fiction under sub-section (2) of Section 141 of the Act, on the
other hand, there has to be a proof with regard to consent
or connivance for the committing of the offence or a criminal
negligence on the part of the director, manager, secretary or
other officer of the company who shall also be deemed to be
guilty of the offence under Section 138 of the Act. Thus, under
sub-section (2) of Section 141 of the Act, when the company
is guilty of the offence under Section 138 of the Act, a director,
manager, secretary or other officer of the company shall also be
deemed to be guilty of the offence and liable to be proceeded
against and punished accordingly, provided there is proof of
mens rea on the part of such category of persons. Hence, a
director, manager, secretary or other officer of the company
cannot be proceeded against per se by virtue of the position
they hold in the company but can be proceeded against only
when there is proof that the offence under Section 138 was
committed by the company with their consent or connivance or
due to negligence on their part. The standard of proof is higher
under sub-section (2) of Section 141 vis-à-vis the category of
persons mentioned therein with regard to their specific role in
688 [2025] 7 S.C.R.
Supreme Court Reports
the commission of the offence under Section 138. This implies
that the primary liability of the company is transferred to the
above categories of persons who are deemed to be guilty
vicariously having regard to the deemed penal nature of the
offence under Section 138 of the Act.
9.5 The Explanation to Section 141 has two clauses. Clause (a)
defines a company to mean any body corporate and includes
a firm or other association of individuals. The expression
“company” encompasses, inter alia, a body corporate which
refers to a company incorporated under the provisions of the
Companies Act or a statutory body. The expression “company”
is inclusive inasmuch as it includes a firm, meaning thereby a
partnership firm, as per the provisions of the Partnership Act,
as well as a limited liability partnership or other association of
individuals. Clause (b) of the Explanation defines a director as
mentioned in sub-section (2) of Section 141 of the Act in relation
to a firm to mean a partner in the firm. Thus by a legislative
device an inclusive definition is added by way of an Explanation
to Section 141 of the Act inasmuch as in jurisprudence and
in law, a company is a distinct body corporate and separate
juristic entity as compared to a partnership firm.
9.6 On a conjoint reading of the various clauses of Section 141,
what emerges is that the expression “company” has been used
in an expansive way to include not just a company incorporated
under the provisions of the Companies Act stricto sensu but
also any body corporate such as a statutory company as well as
other artificial juristic entity such as a partnership firm or other
association of individuals. Hence, the expression “director” in
sub-section (2) of Section 141 is not restricted to a director of
an incorporated company or a statutory body, but also includes
a partner of a firm. The expression “director” in sub-section (2)
of Section 141 of the Act in relation to a firm means a partner,
which is also a legislative device adopted by the Parliament
knowing fully well and being conscious of the fact that a
partnership firm, jurisprudentially speaking, does not stand on
par with a director of a body corporate. Since the Parliament
has used the expression “company” encompassing all types
of juristic persons, it was necessary to give an expanded
[2025] 7 S.C.R. 689
Dhanasingh Prabhu v. Chandrasekar & Another
definition to the expression “director” in relation to a firm to
mean a partner in the firm. Therefore, the inclusion of a firm
within the meaning of the expression “company” is by a legal
fiction and by way of a legislative device only for the purpose
of creating a liability on the partners of the firm, which in any
case, they are liable under the law of partnership in India. But
the definition of the word company including a partnership
firm has been incorporated in the Explanation for the sake of
convenience, as otherwise a similar provision would have to
be inserted for the very same purposes. Instead of replicating
the same definition for different kinds of juristic entities, the
Parliament has thought it convenient to add an Explanation to
define a company for the purpose of Section 141 of the Act in
the context of an offence committed by, inter alia, a company,
as understood within the meaning of the Companies Act, and
also include a firm or other association of individuals within
the definition of company. Similarly, under clause (b) of the
explanation, the expression “director”, in relation to a firm,
means a partner in the firm.
9.7 This also demonstrates the fact that while a director is a
separate persona in relation to a company, in the case of
a partnership firm, the partner is not really a distinct legal
persona. This is because a partnership firm is not really a legal
entity separate and distinct as a company is from its directors
but can have a legal persona only when the partnership firm
is considered along with its partners. Thus, the partnership
firm has no separate recognition either jurisprudentially or in
law apart from its partners. Therefore, while a director of a
company can be vicariously liable for an offence committed by
a company, insofar as a partnership firm is concerned, when
the offence is committed by such a firm, in substance, the
offence is committed by the partners of the firm and not just
the firm per se. Therefore the partners of the firm are liable
for the dishonour of a cheque, even though the cheque may
have been issued in the name of the firm and the offence is
committed by the firm. Therefore, in law and in jurisprudence,
when a partnership firm is proceeded against, in substance,
the partners are liable and the said liability is joint and several
690 [2025] 7 S.C.R.
Supreme Court Reports
and is not vicarious. This is unlike a company which is liable
by itself and since it is an artificial juristic entity, the persons in
charge of the affairs of the company or who conduct its business
only become vicariously liable for the offence committed by
the company.
9.8 However, jurisprudentially speaking, the partners of a partnership
firm constitute the firm and a firm is a compendious term for the
partners of a firm. This is opposed to the position of a director
in a company which is a body corporate stricto sensu and such
a company is a separate juristic entity vis-à-vis the directors.
On the other hand, a partnership firm has no legal recognition
in the absence of its partners. If a partnership firm is liable for
the offence under Section 138 of the Act, it would imply that
the liability would automatically extend to the partners of the
partnership firm jointly and severally. This underlying distinction
between a partnership firm and a company which is a body
corporate has to be borne in mind while dealing with an offence
committed by a company or a partnership firm, as the case
may be, within the meaning of Section 138 read with Section
141 of the Act. To reiterate, in the case of a partnership firm,
there is no concept of vicarious liability of the partners as such.
The liability is joint and several because a partnership firm is
the business of partners and one cannot proceed against only
the firm without the partners being made liable.
9.9 Therefore, even in the absence of partnership firm being
named as an accused, if the partners of the partnership firm
are proceeded against, they being jointly and severally liable
along with the partnership firm as well as inter-se the partners
of the firm, the complaint is still maintainable. The accused
in such a case would in substance be the partners of the
partnership firm along with the firm itself. Since the liability is
joint and several, even in the absence of a partnership firm
being proceeded against by the complainant by issuance of
legal notice as mandated under Section 138 of the Act or being
made an accused specifically in a complaint filed under Section
200 of CrPC, (equivalent to Section 223 of the BNSS), such
a complaint is maintainable.
[2025] 7 S.C.R. 691
Dhanasingh Prabhu v. Chandrasekar & Another
9.10 Thus, when it is a case of an offence committed by a company
which is a body corporate stricto sensu, the vicarious liability
on the categories of persons mentioned in sub-section (1)
and sub-section (2) of Section 141 of the Act accordingly
would be proceeded against and liable for the offence under
Section 138 of the Act. In the case of a partnership firm on
the other hand, when the offence has been proved against
a partnership firm, the firm per se would not be liable, but
liability would inevitably extend to the partners of the firm
inasmuch as they would be personally, jointly and severally
liable with the firm even when the offence is committed in
the name of the partnership firm.
9.11 To reiterate, when the partnership firm is only a compendious
name for the partners of the firm, any offence committed
under Section 138 read with Section 141 of the Act would
make the partners of the firm jointly and severally liable with
the firm. If, on the other hand, the Parliament intended that
the partners of the firm be construed as separate entities
for the purpose of penalty, then it would have provided so
by expressly stating that the firm, as well as the partners,
would be liable separately for the offence under Section 138
of the Act. Such an intention does not emanate from Section
141 of the Act as the offence proved against the firm would
amount to the partners of the firm also being liable jointly and
severally with the firm. Therefore, there is no separate liability
on each of the partners unless sub-section (2) of Section 141
applies, when negligence or lack of bona fides on the part of
any individual partner of the firm has been proved.
10. In view of the aforesaid discussion, we hold that the High Court
was not right in rejecting or dismissing the complaint for the reason
that the partnership firm was not arraigned as an accused in the
complaint or that notice had not been issued to it under Section 138
of the Act. In view of the aforesaid discussion, the notice issued
to the partners of the firm in the instant case shall be construed to
be a notice issued to the partnership firm also viz., ‘Mouriya Coirs’.
Permission is granted to arraign the partnership firm as an accused
in the complaint.
692 [2025] 7 S.C.R.
Supreme Court Reports
11. Consequently, the impugned order of the High Court is set aside.
The complaint bearing STC No.1106/2022 is restored on the file of
the Court of the learned Judicial Magistrate No. II, Pollachi. The trial
court is directed to dispose of the complaint in accordance with law.
12. The appeal is allowed in the aforesaid terms.
Result of the case: Appeal allowed with directions
†
Headnotes prepared by: Ankit Gyan
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "Partnership firm"Sign in to search