Registered Firm Partner Cannot Escape Section 138 Prosecution Without Statutory Retirement Formalities; High Court Order Set Aside

A bench of Justices Abhay S. Oka and Augustine George Masih heard an appeal against the Single Judge of the Karnataka High Court's order dated 23.09.2023 which had entertained a Section 482 CrPC petition by an accused who claimed to have ceased to be a partner of a registered partnership firm and therefore sought to be excluded from prosecution under Section 138 of the Negotiable Instruments Act.

The Supreme Court allowed the appeal, held that the High Court erred in exceeding its jurisdiction under Section 482 CrPC, and restored criminal proceedings before the trial court. The Court emphasised that statutory requirements under the Partnership Act could not be bypassed to escape criminal liability and that mixed questions of fact and law touching on disputed factual matters required evidence at trial rather than determination in a Section 482 petition. The Court, in its reasoning, observed: “Since the Partnership Firm (Accused No.1) is a Firm registered with the Registrars of Firms, the provisions of the Partnership Act need to be referred to. A perusal of Section 72 of the Partnership Act would show that notice of retirement must be given to the Registrar of Firms under Section 63 and by publication in the Official Gazette, and in at least one vernacular newspaper circulated in the district where the Firm to which it relates has its place or principal place of business, such notice needs to be published. ... What, therefore, is mandated under the Statute is that if any registered Firm intends to include or exclude by way of resignation, expulsion or addition of any partner in the Firm, an intimation to the said effect has to be forwarded and conveyed to the Registrar of Firms.” The Court further noted that “the High Court has erred in law by exceeding its jurisdiction while exercising its powers under Section 482 CrPC.”

Background

The appellant filed a complaint under Section 200 CrPC alleging dishonour of twelve post-dated cheques of Rs 50,00,000 each drawn on the partnership firm totalling Rs 6 crore. The cheques stood dishonoured on account of stop payment instructions. After service of the statutory notice and no payment, the complaint under Section 138 NI Act proceeded and summons issued. One accused (Respondent-Accused No.4) filed a Section 482 petition before the High Court stating that he had retired from the registered firm on 01.04.2015 and could not be prosecuted. The appellant opposed the petition, alleging non-compliance with Sections 32, 62, 63 and 72 of the Indian Partnership Act, 1932, and contending that the retirement deed was backdated and that the Registrar's entry post-dated the issuance of the cheques and the legal notice. The trial court had earlier heard and dismissed the accused’s discharge application under Section 239 CrPC on merits on 01.09.2021. The High Court allowed the Section 482 petition, finding that the accused had ceased to be a partner and that the cheques were signed by another partner in individual capacity. The Supreme Court reviewed the pleadings and statutory scheme, held that the absence of required Registrar entry and publication was material, observed that “These facts collectively demonstrate that the requirements under Section 141 of the NI Act have been satisfied,” and concluded that the questions were mixed issues requiring trial. The Supreme Court set aside the High Court order, restored CC No.17788/2020 before the ACMM, Bengaluru, directed the trial court to proceed in accordance with law, and clarified that its observations would have no bearing on merits at trial. Pending applications stood disposed of.

Case Details: Case No.: Criminal Appeal No. 4363 of 2024 (2025 INSC 729) Case Title: Shivappa Reddy … Appellant v. S. Srinivasan … Respondent Appearances: For the Petitioner(s): Not indicated in the judgment For the Respondent(s): Not indicated in the judgment