2019 (5) TMI 796 - HC - Indian Laws

Legal Clarification: Sole Proprietorships Exempt from Section 141 NI Act

Manoj Singh Versus State of U.P. And Another

The court clarified that Section 141 of the Negotiable Instruments Act, 1881 does not apply to sole proprietorship concerns as they are not considered ... Dishonor of Cheque - cheque issued by a proprietorship firm - Proceedings againt the individual / proprietor - Section 138 of NI Act - case of appellant is that the complaint is wholly incompetent since the cheque (giving rise to the complaint) was issued by the 'company' M/s Manoj Rice Mill that was not impleaded as an accused person - HELD THAT:- In the first place there is no dispute to the fact that the applicant was running a sole proprietary concern in the name M/s Manoj Rice Mill. It was neither a partnership firm nor a company nor any other association of persons. A plain reading of provision of section 141 of NI Act makes it clear, if the person committing the offence is a 'company', in that event every natural person responsible for such commission as also the artificial person namely the company shall be deemed to be guilty of the offence and be liable to be proceeded against and punished accordingly. Also, certain other natural persons may be held guilty, if so proved - By way of the Explanation (a) attached to that provision of law, the term 'company' (specifically for the purpose of Section 141 of the Act), has been defined to mean a body corporate or a firm or any other association of individuals. In this statutory context, it calls for examination whether a sole proprietary concern, qualifies or falls within the meaning of the term 'company' or a 'firm' used in that provision. In the present case, there is no defect in the complaint lodged against the applicant, in his capacity as the sole proprietor of the concern M/s Manoj Rice Mill. There was no requirement to implead his sole proprietary concern as an accused person nor there was any need to additionally implead the applicant by his trade name. Application dismissed. Issues Involved:1. Applicability of Section 141 of the Negotiable Instruments Act, 1881 to sole proprietorship concerns.2. Requirement to implead a sole proprietorship concern as an accused in a complaint under Section 138 of the Negotiable Instruments Act, 1881.3. Validity of the complaint against the sole proprietor without impleading the sole proprietorship concern.Issue-wise Detailed Analysis:1. Applicability of Section 141 of the Negotiable Instruments Act, 1881 to sole proprietorship concerns:The primary issue was whether Section 141 of the Negotiable Instruments Act, 1881, which deals with offences by companies, applies to sole proprietorship concerns. The applicant argued that the complaint was incompetent as the cheque was issued by the 'company' M/s Manoj Rice Mill, which was not impleaded as an accused. The court clarified that Section 141 applies to companies, partnerships, and associations of individuals, but not to sole proprietorships. A sole proprietorship is not a body corporate, firm, or association of individuals as defined under Section 141. The court emphasized that a sole proprietorship does not create a separate legal entity distinct from the proprietor.2. Requirement to implead a sole proprietorship concern as an accused in a complaint under Section 138 of the Negotiable Instruments Act, 1881:The court examined whether it was necessary to implead the sole proprietorship concern as an accused in the complaint. It was held that a sole proprietorship concern is merely a trade name and does not have an independent legal existence. The court noted that in the context of Section 141, the term 'company' includes a body corporate, firm, or association of individuals, but a sole proprietorship does not fall under any of these categories. Therefore, there was no requirement to implead the sole proprietorship concern separately in the complaint.3. Validity of the complaint against the sole proprietor without impleading the sole proprietorship concern:The court upheld the validity of the complaint against the sole proprietor without the need to implead the sole proprietorship concern. It was reasoned that the sole proprietor and the proprietorship concern are one and the same entity. The court cited precedents, including the Supreme Court's decision in Raghu Lakshminarayanan v. Fine Tubes, which stated that a proprietary concern is not a company and does not create vicarious liability. The court further noted that the decision in Hitendra Kishan Lal Jain, which suggested otherwise, was not based on a correct reading of the law and was rendered per incuriam.Conclusion:The court concluded that the complaint against the applicant, in his capacity as the sole proprietor of M/s Manoj Rice Mill, was valid. There was no defect in the complaint, and there was no requirement to implead the sole proprietorship concern separately. The application to quash the lower court's orders was dismissed for lack of merit.