TaxTMI 
TaxTMI 
2017 (4) TMI 874
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....tha. Both the criminal cases are relating to dishonour of cheques punishable under Section 138 of the Negotiable Instruments Act. 3 The applicant herein has been arraigned as an accused in his capacity as one of the partners of the partnership firm namely, Mangalam Oil Industries. Indisputably, the applicant has not signed the cheques on behalf of the firm. The cheques in question were signed by the original accused No.1 in his capacity as a partner for and on behalf of the partnership firm. 4 Both the cheques came to be dishonoured on the date when they were presented, as the validity period of the cheques had expired. 5 The only question that falls for my consideration is whether the applicant herein can be prosecuted for the offence alleged by virtue of Section 141 of the Negotiable Instruments Act. 6 Indisputably, Mangalam Oil Industries i.e. the partnership firm, being a legal entity, has not been arraigned as an accused. In such circumstances, the decision of the Supreme Court in the case of Aneeta Hada vs. M/s. Godfather Travels and Tours Pvt. Ltd. [AIR 2008 SC (Supp) 1849] would come into play. However, Mr. Pandya, the learned counsel appearing for the complainant has a....
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.... and since the trade carried on by the firm was one, the tax could be levied on the firm, and not on the partners individually. On such premises, it was pleaded that the Municipal Committee in levying the tax on the individual partners had exceeded its statutory powers under Section 61 (1)(b) of the Municipal Act. 9.1 The trial Court dismissed the suit, on appeal by the plaintiffs, the Additional District Judge, Amritsar, reversed the judgment of the trial Court and decreed the suit. The Municipal Committee carried a further appeal to the High Court. The learned Single Judge, who heard the appeal, affirmed the judgment and decree of the first appellate Court. The matter reached upto the Supreme Court. The Supreme Court in para 14 quoted Section 61(1)(b) of the Municipal Act material for the purpose of deciding the case which reads as under: Subject to any general or special orders which the State Government may make in this behalf, and the rules, any committee may, from time to time for the purposes of this Act, and in the manner directed by this Act, impose in the whole or any part of the municipality any of the following taxes, namely:( 1) (a) .............. (i) to (ii....
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....s. All the partners are jointly and severally responsible for the liabilities incurred or obligations incurred in the course of the business. Each partner is considered an agent of the other. This being the position, it is not possible to hold that each of the six partners is not carrying on a trade or calling within the purview of clause (b) of Section 61 (1) of the Municipal Act. At the most, it can be said that each of these six persons is severally as well as collectively carrying on a trade in the Municipality. There is nothing in the language of Section 61 or the scheme of the Municipal Act which warrants the construction that persons who are carrying on a trade in association or partnership with each other cannot be individually taxed under clause (b) of Section 61 (1). On the contrary, definite indication is available in the language and the scheme of this statute that such partners can be taxed as persons in their individual capacity. As noticed already, clause (b) makes it clear in no uncertain terms that this is a tax on 'persons'. Its incidence falls on individuals, who belong to a class practicing any profession or art; or carrying on a trade or calling in the ....
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.... a legal entity. It is merely acollective name for the individual members of the partnership. A firm as such cannot be a partner in another firm though its partners may be partners in another firm in their individual capacity. Either under the repealed Act or the Act, a firm is liable to be separately assessed to tax as well as all its partners in their capacity as individuals if they have taxable income. The appellant is separately registered under S. 26A of the Act and assessed to tax from the assessment year 1960-61 and onwards. There is no reconstitution of the original firm Prayagechand Hanumanmal inducting Periwal,and Co. (P.) Ltd. as its partner. Thus it is clear that the appellant assessee is a new identity under the Act. It is not a successor in interest of the old firm as per the provisions of the Act. The question then is whether the assessee is entitled to development rebate under S. 33(1) of the Act. (Under S. 10(1)(vib) of the repealed Act). Section 33(1) gives right to development rebate only to the owner who has acquired the ship or installed the machinery or plant. The necessary implication is that the assessee who claims development rebate should continue to remai....
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....hese characteristics and professional acumen to a person or persons in a firm alone. A single individual as an auditor in a proprietary concern can have such characteristics and professional acumen by himself and also through the assistance of experienced auditor who could be in his services as efficient as any partnership firm. It is often seen in many cases that some of the partners of the partnership firm are sleeping partners with no professional duties to discharge. A partnership concern is not a legal entity like company; it is a group of individual partners. In a partnership firm, it is the partner who will be assisted in carrying out the work but quite remains the eligible Chartered Accountant. It is the same situation as in a proprietary concern where a Chartered Accountant would be carrying on audit work allinone. Merely because some of the Chartered Accountants have formed a partnership firm, it cannot be assumed that they become more efficient for carrying out audit work than the individual Chartered Accountant who forms proprietary concern. It is, therefore, evident that the appellant himself erroneously assumed that the partnership firms are more efficient than the pr....
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....ay be mentioned that a partnership firm, unlike a company registered under the Indian Companies Act, 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 coowners of the property of the firm, unlike shareholders in a company who are not coowners of the property of the company. 17. It has already been mentioned above that a partnership firm, whether registered or unregistered, is not a distinct legal entity, and hence the property of the firm really belongs to the partners of the firm. Subsection (2A) virtually deprives a partner in an unregistered firm from recovery of his share in the property of the firm or from seeking dissolution of the firm. 14 What is discernible from a conspectus of the authorities referred to above is that a partnership firm, unlike a company registered under the Indian Companies Act, is not a distinct legal entity or a juristic person, but is only a compendium of its partners. Even the registration of a firm would not make it a distinct legal entity like a company. The partners of a firm are coowne....
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....ty of the offence and shall be liable to be proceeded against and punished accordingly. The offender in section 138 of the Act is the drawer of the cheque. He alone would have been the offender thereunder if the Act did not contain other provisions. It is because of section 141 of the Act that penal liability under section 138 is cast on other persons connected with the company. Three categories of persons can be discerned from the said provision who are brought within the purview of the penal liability through the legal fiction envisaged in the section. They are: (1) The company the principal offender which committed the offence, (2) Every one who was in charge of and was responsible for the business of the company, (3) Any other person who is a director or a manager or a secretary or officer of the company, with whose connivance or due to whose neglect the company has committed the offence. However, if a person proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence, he shall not be liable to punishment under this section. Subsection (2) further provides that where any offence under this Act....
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....p firm and the provision has to be read as if it refers to the firm. What this means is that a complaint can be filed for the offence under Section 138 Negotiable Instruments Act not only against the partnership firm on whose behalf the cheque was issued but also against an individual partner or person who, at the time of the commission of the offence, was in charge of the affairs of the firm or responsible to it for the conduct of its business. There is nothing in the provision which indicates that in every complaint involving the dishonour of a cheque issued by a firm both the firm as well as its partners have to be compulsorily impleaded. In other words a complaint in which only the firm is made an accused and the partners are not would not be bad in law for that reason. Clearly that is not the intention of the Parliament. 20 A partnership firm is a separate legal entity in terms of the Indian Partnership Act 1932 and it is answerable in law in that capacity. That is how under various statutes like the Income Tax Act 1961, the Central Excises Act 1944, the Sales Tax Laws and Section 141 Negotiable Instruments Act, a firm can be proceeded against as such. It is perfectly possib....
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.... according to its own tenor." 24 The principles laid down by the aforesaid authors are fully supported by various authorities of the Supreme Court. In Burmah Shell Oil Storage and Distributing Co. of India Ltd. v. Commercial Tax Officer [(1961) 1 SCR 902 : (AIR 1961 SC 315)], a Constitution Bench decision of the Supreme Court observed thus : "Now, the Explanation must be interpreted according to its own tenor, and it is meant to explain cl. (1)(a) of the Article and not vice versa . It is an error to explain the Explanation with the aid of the Article, because this reverses their roles." 25 In Bihar Cooperative Development Cane Marketing Union Ltd. v. Bank of Bihar (1967) 1 SCR 848 : (AIR 1967 SC 389) the Supreme Court observed thus : "The Explanation must be read so as to harmonise with and clear up any ambiguity in the main section. It should not be so construed as to widen the ambit of the section." 26 In Hiralal Rattanlal etc. v. State of U.P. [(AIR 1973 SC 1034)], the Supreme Court observed thus : "On the basis, of the language of the Explanation this Court held that it did not widen the scope of clause (c). But from what has been said in the case, it is clear t....
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....our of the cheque. The law, in this regard, is wellsettled. In the case of Mrs. Aparna A. Shah vs. M/s. Sheth Developers Pvt. Ltd. and another [AIR 2013 SC 3210], the Supreme Court has observed in so many words that it is only the drawer of the cheque who can be held responsible. If the other partners are to be held responsible for the dishonour, then they can be held responsible only by fastening vicarious liability under Section 141 of the Negotiable Instruments Act and this is permissible only if the firm is a legal entity. 10 On this ground alone, the proceedings deserve to be quashed so far as the applicant herein is concerned. 11 There is one more contention raised by Mr. Pandya, the learned counsel appearing for the complainant as regards the validity period of the cheques. Indisputably, on the date when the cheques were presented in the Bank, the validity period of the instruments had expired. This is what the Bank informed to the complainant. According to Mr. Pandya, the law permits him to deposit the cheques within six months from the date mentioned in the cheques. However, the period, which has been mentioned in Section 138(a) of the Negotiable Instruments Act, has now....
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....case on hand, the cheque was presented by the complainant for encashment after the expiry of currency of three months and in such circumstances, the provisions of Section 138 of the Negotiable Instruments Act are not attracted in this case in view of Clause (a) of the proviso to Section 138 of the Negotiable Instruments Act. 13 The Supreme Court, in the case of Shri Ishar Alloys Steels Ltd vs. Jayaswals NECO Ltd. [AIR 2001 SC 1161], observed in para 9 as under: "It, however, does not mean that the cheque is always to be presented to the drawer's bank on which the cheque is issued. The payee of the cheque has the option to present the cheque in any bank including the collecting bank where he has his account but to attract the criminal liability of the drawer of the cheque such collecting bank is obliged to present the cheque in the drawee or payee bank on which the cheque is drawn within the period of six months from the date on which it is shown to have been issued. In other words a cheque issued by (A) in favour of (B) drawn in a bank named (C) where the drawer has an account can be presented by the payee to the bank upon which it is drawn i.e. (C) bank within a period of si....
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....heque or the payee has to present the cheque well in advance, considering the exigencies or contingencies or delay that is likely to occur on the part of the collecting bank or the postal authorities. He cannot wait till the last day of the period of validity for presentment of the cheque, because proviso (a) to Sec. 138 makes it abundantly clear that if presentment of a cheque is not made within 6 months from the date on which the cheque is drawn or within the period of its validity whichever is earlier, the cause to lodge the complaint does not subsist or live on, for in that case the offence cannot be said to have been constituted and payee or holder of a cheque loses his right if there be any to initiate criminal action. 11. In this case, presentment of the cheque to the paying Bank is, in view of the abovestated dates, not made within 6 months of the date of the cheque. The presentment is late by four days. The cheque, therefore, became a stale cheque and the same was, therefore, bounced without honouring the same. As the presentment is not in consonance with Sec. 138 of the Act, and is late by 4 days, one of the essential requirements of Sec. 138 of the Act for initiating p....
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....n the Treasury Savings Bank, Rule 1 in appendix 1 states that the object of the Government in establishing Treasury Savings Bank Scheme is to provide a ready means for the deposit of savings and so to encourage thrift. Treasury Code Vol. I, Part I, Rule 2(c) defines 'cheque' and Rule 61(1) deals with nonbanking Treasuries and Rule 61(2) deals with banking Treasuries. Chapter III of the Kerala Treasury Code Vol. II deals with the rules relating to Treasury Savings Bank. The counsel for the appellant argued that transaction in the banking Treasury is similar to the transaction in ordinary banks and the Treasury cheque drawn has to be treated as a cheque drawn on a bank for all purposes under S. 138 of the Negotiable Instruments Act and there cannot be any distinction between ordinary bank and the Treasury dealing with banking transactions. 9. The counsel for the appellant further argued that banking being Union subject in the first list of Schedule 7 of the Constitution, the Treasury Code which is a subordinate legislation promulgated by the Governor of Kerala applicable to the territory in Kerala under Art. 283(2) of the Constitution, cannot have overriding effect on the p....