The prosecution under Section 138 of N.I. Act is not barred by Section 69 (2) of Indian Partnership Act: Bombay HC
[ by Kavita Krishnan ]The question before the Bombay High Court was whether prosecution of accused under Section 138 of the Negotiable Instruments Act is hit by the bar created by Section 69 (2) of the Indian Partnership Act, 1932 (Partnership Act)?The Bombay High Court held that the object of introducing Sections 138 to 142 of the Negotiable Instruments Act (N.I. Act) vide Amendment Act 66...
The question before the Bombay High Court was whether prosecution of accused under Section 138 of the Negotiable Instruments Act is hit by the bar created by Section 69 (2) of the Indian Partnership Act, 1932 (Partnership Act)?
The Bombay High Court held that the object of introducing Sections 138 to 142 of the Negotiable Instruments Act (N.I. Act) vide Amendment Act 66 of 1998 was specifically to enhance the acceptability of cheques in settlement of liabilities by making the drawer liable for penalties in case of bouncing of cheques due to insufficiency of funds in the accounts or for the reason that it exceeds the arrangement made by the drawer. Section 138 of the N.I. Act is applicable only in case the cheque is presented for payment within a period of six months from the date on which it is drawn or within the period of its validity whichever is earlier.
The Court further held that there is no disagreement with the proposition that the ‘debt or other liability’ as has been referred in Section 138 of the N.I. Act, is a ‘legally enforceable debt or other liability’. However, by creating a bar to enforce a right arising out of contract by an unregistered firm, with the object to promote registration of the firms and to exempt the small firms from compulsory registration, the inherent character of enforceability of the ‘right’ does not get changed and it would still remain as a right enforceable by law.
The Court opined that once the bar is removed, the remedy would be revived. Moreover, even the plaintiff/unregistered firm can withdraw the suit with liberty to file a fresh one after getting the firm registered and section 14 of the Limitation Act, 1963 (Limitation Act) would apply to such proceedings.
The Court noted that in Sai Accumulator Industries, Sangamner Vs. Sethi Brothers, Aurangabad, the Single Bench of Bombay High Court took a view that the complaint filed by an unregistered firm under Section 138 of the N.I. Act is not tenable in law in view of the bar under Section 69(2) of the Partnership Act.
The Court went on to hold that by way of simple endorsement, the cheque can be negotiated in the name of any person or registered firm and thus the effect of bar can be neutralized by an unregistered firm. In such an eventuality, there won’t be privity of contract between the drawer of the cheque and its holder.
The High Court in its reply to the question posed before it held that “The prosecution of an accused under Section 138 of the N.I. Act, 1888, is not hit by the bar created by Section 69 (2) of the Indian Partnership Act, 1932.”
The High Court reiterated the holding of the larger Bench of Andhra Pradesh High Court in A.V. Ramanaiah vs. M. ShekharaI that the bar contained under Section 69 of the Limitation Act is intended to prevent an unregistered partnership firm to enforce a right arising out of a contract against a third party, and that it is not intended to create any such bar for the purposes of enforcing rights arising out of statutes or for invoking the protection available under any other statute.