All HC | Principle contained in S. 141 of NI Act is not applicable to a sole-proprietary concern, firm need not be arraigned as an accused while making a claim for recovery under S. 138 of the NI Act

Allahabad High Court: While deciding a petition filed under Article 227 of the Constitution of India, Suresh Kumar Gupta, J., dismissed the same and declined to interfere in the judgment delivered by Sessions Court.

The present petition has been filed by the petitioner to set aside the impugned orders dated 31-10-2018 passed by Additional Court No. 3, Agra in Complaint No. 1500 of 2011 (Nepal Singh v. Dhirendra Singh) under Section 138 of Negotiable Instruments Act, 1881(Hereinafter referred as N.I. Act) and the order dated 6-02-2020 passed by Additional Sessions Judge, Agra in Criminal Revision No. 552 of 2018 (Dhirendra v. State of U.P. ) and to quash the summoning order dated 28-3-2012 as well as an entire proceeding of Complaint Case No. 1500 of 2011 pending in the Additional Court No. 3, Agra.

The factual matrix in the instant case is such that the present petitioner borrowed Rs 1,00,000 from respondent 2 and handed over cheques bearing Nos. 850213 & 850214 for repayment of the borrowed amount. However, the cheques were dishonoured by the bank due to insufficient amount in the account subsequent to which respondent 2 served a notice to the petitioner on 18-10-2011. Later, on 08-11-2011, respondent 2 filed a complaint case no. 1500 of 2011 (Nepal Singh v. Dhirendra Singh) under Section 138 of N.I. Act against the petitioner in the trial court. The trial court vide its order dated 28-3-2012 has taken cognizance and summoned the petitioner.

Counsel for the petitioner, Deepak Kumar Kulshrestha has relied on Section 138 of the N.I. Act, submitting that the complainant/respondent is incompetent to lodge the prosecution as the cheques were issued by the firm Rashmi Arosole & Chemicals and the petitioner is the proprietor of this firm but the firm is not arraigned as an accused. He relied on the judgments delivered in the cases of Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661 and Devendra Kumar Garg v. State of U.P., 1990 SCC OnLine All 806 and added that until and unless company or firm is arraigned as an accused director or the other officer of the company/firm cannot be prosecuted/punished in the complaint.

Counsel for the respondent, S.B. Maurya attempted to refute these contentions by submitting that the cheques were drawn by the petitioner in his personal capacity and were given by way of security for payment of money. The circumstances do not warrant the arraignment of the aforementioned firm as a party.

The Court perused the cheques closely and concluded that the cheques bear the petitioner’s signature and that there is no dispute with regard to the fact that the petitioner is the sole proprietor of Rashmi Arosole & Chemicals. Also, on perusal of the registration certificate of the firm, it can be established that the petitioner is the sole proprietor of the firm namely Rashmi Arosole & Chemicals.

Upon careful consideration of the facts, circumstances and arguments advances, the Court observed that-

“While a partnership results in the collective identity of a firm coming into existence, a proprietorship is nothing more than a cloak or a trade name acquired by an individual or a person for the purpose of conducting a particular activity. With or without such trade name, it (sole proprietary concern) remains identified to the individual who owns it. It does not bring to life any new or other legal identity or entity. No rights or liabilities arise or are incurred, by any person (whether natural or artificial), except that otherwise attach to the natural person who owns it. Thus it is only a ‘concern’ of the individual who owns it. The trade name remains the shadow of the natural person or a mere projection or an identity that springs from and vanishes with the individual. It has no independent existence or continuity.”

The Court was able to conclude that in a sole proprietary concern, vicarious liability cannot arise because there’s only one person involved. The identity of the sole proprietor and his concern remain one, even if the sole proprietor may adopt a different name for his concern. Hence, there is no defect in the complaint lodged by the respondent. The sole proprietorship firm need not be impleaded for the respondent to realise his claim against the petitioner.

In view of the above, the petition has been dismissed for lack of merit. The Court found no reason to interfere in the orders dated 31-10-2018 passed by Additional Court No. 3, Agra and the order dated 6-2-2020 passed by Additional Sessions Judge against the petitioner. [Dhirendra Singh v. State of U.P., 2020 SCC OnLine All 1130, decided on 13-10-2020]


Yashvardhan Shrivastav, Editorial Assistant has put this story together

One comment

  • Avatar

    good judgment on that part people must be know the fact before transacting amount without balance in account. in Ditial Era RTGS, NTEF, etc facilities should be apply, discouraging the court case and business trader litigation.

Join the discussion

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.