2024 (9) TMI 1241 - HC - Indian Laws

Partnership firm members cannot face Section 138 prosecution without signing dishonored instruments or managing business operations

KARAMSHI DALABHAI DESAI & ORS. Versus STATE OF GUJARAT & ANR.

The Gujarat HC quashed proceedings under Section 138 of the Negotiable Instruments Act against petitioners who were neither partners of the partnership ... Dishonour of Cheque - liability of petitioner and legality of proceedings against him - HELD THAT:- Admittedly the petitioners are neither the partners of the partnership firm nor the signatories of the instruments in question and therefore proceedings initiated under Section 138 of the Negotiable Instruments Act against the petitioners are nothing but sheer abuse of process of the Court and while passing the order of issuance of process against the petitioners, the learned Court concerned has committed an error, which warrants interference by this Court. It is also pertinent to note that respondent No.2 and his wife have also filed one suit before the concerned Court against the present petitioners and others and in the said suit original accused Nos. 1 to 8 are not impleaded as party and no relief is sought against them. It is not in dispute that original accused No.6 is the authorized signatory of accused No.1 - partnership firm i.e. Shri Siddhivinayak Associates and accused nos. 2 to 8 are the partners of the said partnership firm. If the allegations levelled against the petitioners in the complaints filed under Section 138 of the Negotiable Instruments Act are taken at its face value and accepted in their entirety, they do not constitute the offence alleged, insofar as the present petitioners are concerned. It is well settled that when the instrument is signed by the authorized signatory of a partnership firm, the prosecution under Section 138 of the Negotiable Instruments Act can be instituted against the persons, who were in-charge and responsible for the conduct of the business of the partnership firm at the relevant time when the offence was committed - without going into the further details of the matter, only on the ground that petitioners are neither the partners of the partnership firm nor the signatories of the instruments in question, the present petitions are required to be allowed. The proceedings pending in the Court of Additional Chief Judicial Magistrate, Ahmedabad (Rural) are quashed qua the petitioners - Petition allowed. Issues Involved:1. Quashing of Criminal Case No. 6364 of 2018 under Section 138 of the Negotiable Instruments Act.2. Petitioners' involvement and issuance of cheques.3. Civil suit related to the same transaction.4. Applicability of Section 482 of the Code of Criminal Procedure.Detailed Analysis:1. Quashing of Criminal Case No. 6364 of 2018 under Section 138 of the Negotiable Instruments Act:The petitioners sought to quash the Criminal Case No. 6364 of 2018 filed before the Judicial Magistrate First Class, Ahmedabad (Rural) for an offense punishable under Section 138 of the Negotiable Instruments Act, 1881. The case revolved around the dishonor of cheques amounting to Rs. 11,50,00,000/- issued by Shri Siddhivinayak Associates, a registered partnership firm, through their authorized signatory, original accused No. 6. The cheques were issued as part of a transaction involving the sale of agricultural land, but were dishonored upon deposit.2. Petitioners' Involvement and Issuance of Cheques:The petitioners argued that they were neither partners of the partnership firm nor signatories of the cheques in question. They contended that the learned Judicial Magistrate mechanically issued the process against them without considering these facts. The petitioners emphasized that they had no direct involvement in the issuance of the cheques and that the criminal prosecution against them was an abuse of the process of the Court.3. Civil Suit Related to the Same Transaction:The complainant and his wife had also filed a civil suit (Special Civil Suit No. 207 of 2018) seeking various reliefs, including recovery of money and cancellation of the registered sale deeds. The civil suit named the petitioners as defendants but did not include the partners of the partnership firm who had issued the cheques. The petitioners highlighted that the civil court had already rejected an application by the complainant and his wife in this regard, further supporting their claim that the criminal case was unwarranted.4. Applicability of Section 482 of the Code of Criminal Procedure:The Court considered the inherent powers under Section 482 of the Code of Criminal Procedure, which can be exercised to prevent abuse of the process of the Court or to secure the ends of justice. The Court referenced the decision in Achin Gupta v. State of Haryana and Another, which outlines circumstances under which inherent jurisdiction may be exercised, including when the allegations do not constitute the offense alleged.Conclusion:The Court found that the petitioners were neither partners of the partnership firm nor signatories of the cheques in question. It concluded that the proceedings initiated under Section 138 of the Negotiable Instruments Act against the petitioners were an abuse of the process of the Court. The Court held that the learned Judicial Magistrate had committed an error in issuing the process against the petitioners. Consequently, the Court quashed the proceedings of Criminal Case Nos. 6364 of 2018 and 6457 of 2018 pending in the Court of Additional Chief Judicial Magistrate, Ahmedabad (Rural) as they pertained to the petitioners.Final Order:The petitions were allowed, and the proceedings of Criminal Case Nos. 6364 of 2018 and 6457 of 2018 were quashed concerning the petitioners. The rule was made absolute to the aforesaid extent, and any connected application was disposed of.