[CASE NUMBER] ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD CRIMINAL MISC.APPLICATION (FOR QUASHING & SET ASIDE FIR/ORDER) NO. 19549 of 2016 With CRIMINAL MISC.APPLICATION NO. 19550 of 2016
[ENTITY] Applicant(s) Versus [ENTITY] & 1 Respondent(s) Appearance:
MR [ENTITY], ADVOCATE for the Applicant(s) No. 1 MS [ENTITY], ADVOCATE for the Applicant(s) No. 1 MR [ENTITY], ADVOCATE WITH MR. [ENTITY], ADVOCATE MS [ENTITY], APP for the Respondent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE [ENTITY] Date : 11/04/2017 ORAL COMMON ORDER 1 Rule returnable forthwith. Ms. [ENTITY], the learned Additional PublicProsecutorwaviesserviceofnoticeofruleforandonbehalfofthe respondent - State of Gujarat.Mr.[ENTITY], the learnedcounsel waivesserviceofnoticeofruleforandonbehalfofthecomplainant.
2 By these two applications under [SECTION] of the [ACT]prayingforquashingofthe proceedingsoftheCriminalCasesNos.1073of2015and1074of2015 respectivelypendingintheCourtofthelearnedJudicialMagistrateFirst HC-NIC Page 1 of 15 Created On Tue Aug 15 20:58:19 IST 2017 [CASE NUMBER] ORDER Class, Dhanera, District: Banaskantha. Both the criminal cases are relatingtodishonourofchequespunishableunderSection138ofthe NegotiableInstrumentsAct.
3 The applicant herein has been arraigned as an accused in his capacity as one of the partners of the partnership firm namely, MangalamOilIndustries.Indisputably,theapplicanthasnotsignedthe chequesonbehalfofthefirm.Thechequesinquestionweresignedby theoriginalaccusedNo.1inhiscapacityasapartnerforandonbehalf ofthepartnershipfirm.
4 Boththechequescametobedishonouredwithanendorsement "accountclosed"onthedatewhentheywerepresented.
5 Theonlyquestionthatfallsformyconsiderationiswhetherthe applicanthereincanbeprosecutedfortheoffenceallegedbyvirtueof [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,thedecisionoftheSupremeCourtinthecaseofAneeta Hadavs.M/s.GodfatherTravelsandToursPvt.Ltd.[AIR2008SC (Supp)1849]wouldcomeintoplay.However,Mr.[ENTITY],thelearned counsel appearing for the complainant has an argument to canvass.
According to Mr. [ENTITY], the proposition of law laid down by the SupremeCourtinAneetaHada(supra)wouldapplyonlyinthecaseof Directorsofthecompanyandnotapartnershipfirm,asapartnership firmisnotalegalentityforthepurposeofSection141oftheNegotiable InstrumentsAct.AccordingtoMr.[ENTITY],evenintheabsenceofthe partnershipfirminthecomplaint,thepartnerscanbeproceededforthe HC-NIC Page 2 of 15 Created On Tue Aug 15 20:58:19 IST 2017 [CASE NUMBER] ORDER offencepunishableunderSection138oftheN.I.Act.
7 This Courthadanoccasiontoconsiderthe question whethera partnershipfirmisalegalentitylikea'company'sofarastheoffence punishable under [SECTION] of the [ACT] is concernedinthecaseof [ENTITY].StateofGujarat [[PRECEDENT]
"8 Having heard the learned counsel appearing for the applicant and havingconsideredthematerialsonrecord,thefollowingquestionsfallfor myconsideration:
I. Whetherapartnershipfirmisalegalentitylikeacompanysofar as the offence punishable under [SECTION] of the Negotiable InstrumentsActisconcerned?
II. Istheprosecutionofthepartnersofafirm,byvirtueofSection141 of the Act, maintainable in the absence of the partnership firm beingimpleadedorarraignedasanaccused?
III.WhenthecomplaintunderSection138oftheActhastheinitial defectinitssustainability,cansuchdefectbecuredbyamending theproceedingsbyvirtueofanapplicationunderSection319ofthe [ACT]?
FIRSTQUESTION:
9 Before I proceed to answer the first question, let me look into the decisions reliedupon bythelearned counselinthatregard. In [ENTITY] firm, Bharat Industries, Chheharta. ByaNotification, 15th May, 1946, theChhehartaMunicipalCommitteeleviedaprofessiontaxunder[SECTION](1)(b)ofthePunjabMunicipalAct,1911.Theappellantsfiledasuitfor permanentinjunctionrestrainingthedefendantcommitteefromrealizing theprofessiontaxdemandedbyit.Theappellantschallengedthevalidity oftheassessmentcontendingthatconstruedinlightofthedefinitiongiven in [SECTION] of the [ACT], the term person occurringinSection6(1)(b)ofthePunjabMunicipalAct,1911,included afirmandsincethetradecarriedonbythefirmwasone,thetaxcouldbe leviedonthefirm,andnotonthepartnersindividually.Onsuchpremises, itwas pleaded that the Municipal Committee inlevying thetaxonthe individual partners had exceeded its statutory powers under [SECTION].
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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 thesuit.The MunicipalCommittee carried afurther appealtotheHighCourt.ThelearnedSingleJudge,whoheardtheappeal, affirmedthejudgmentanddecreeofthefirstappellateCourt.Thematter reacheduptotheSupremeCourt.TheSupremeCourtinpara14quoted Section61(1)(b)oftheMunicipalActmaterialforthepurposeofdeciding thecasewhichreadsasunder:
Subject to any general or special orders which the State Governmentmaymakeinthisbehalf,andtherules,anycommittee may, from time totime for the purposes ofthis Act, and inthe mannerdirectedbythisAct,imposeinthewholeoranypartofthe municipalityanyofthefollowingtaxes,namely: (1)(a)
(i)to(iii)
(b)ataxonpersonspractisinganyprofessionorartorcarryingon anytradeorcallinginthemunicipality.
Explanation.Apersonintheserviceorpersonholdinganoffice undertheStateGovernmentortheCentralGovernmentoralocal or other public authority shall be deemed to be practicing a professionwithinthemeaningofthissubsection."
9.2TheSupremeCourtproceededtoobserveinparas15,16and18as under:
15.Fromaplainreadingoftheextractedprovision,itisclearthat ataxleviableunderclause(b)is,interms,ataxon"persons".The expression "persons" undoubtedly includes natural persons. The classofsuchtaxablepersonshasbeenindicatedbytheLegislature withreferencetotheiroccupationalactivity.Thus,inordertobe authorised,ataxunderclause(b)ofSection61(1)mustsatisfy twoconditions:First,itmustbeataxon"persons".Second,such personsmustbepracticinganyprofessionorartorcarryingonany tradeorcallinginthemunicipality.
16.Therecanbenodisputethattheappellantsare"person"and,as such, satisfythefirstcondition. Even thelearned counselforthe appellantshascandidlyconcededthattheindividualpartnersare also "persons" within the meaning of the said clause (b).
Controversythusbecomesnarroweddownintotheissue:Whether persons collectively doing business in partnership in the HC-NIC Page 4 of 15 Created On Tue Aug 15 20:58:19 IST 2017 [CASE NUMBER] ORDER municipality,fulfillthesecondcondition?Thatistosay,dosuch persons"carryonanytradeorcallinginthemunicipality"within thecontemplationofclause(b)?
18. 'Partnership'asdefinedinSection4oftheIndianPartnership Act, 1932, is the relation between persons who have agreed to sharetheprofitsofabusinesscarriedonbyalloranyofthemfor thebenefitofall.Thesectionfurthermakesitclearthatafirmor partnership is not a legal entity separate and distinct from the partners.Firmisonlyacompendiousdescriptionoftheindividuals who compose the firm. The crucial words in the definition of 'partnership' are those that have been underlined. They hold the key tothe question posed above. They show that the business is carried on by all or any of the partners. In the instant case, admittedly,alltheplaintiffappellantsarecarryingonthebusiness in partnership. All the six partners are sharing the profits and losses.Allthepartnersarejointlyandseverallyresponsibleforthe liabilities incurred or obligations incurred in the course of the business. Each partner is considered an agent of the other. This being theposition, itisnotpossible toholdthateachofthesix partnersisnotcarryingonatradeorcallingwithinthepurviewof clause(b)ofSection61(1)oftheMunicipalAct.Atthemost,it canbesaidthateachofthese sixpersons isseverallyaswellas collectively carrying on a trade in the Municipality. There is nothing in the language of [SECTION] or the scheme of the MunicipalActwhichwarrantstheconstructionthatpersonswho are carrying on atrade in association or partnership with each othercannotbeindividuallytaxedunderclause(b)ofSection61 (1). On the contrary, definite indication is available in the languageandtheschemeofthisstatutethatsuchpartnerscanbe taxed aspersonsintheirindividualcapacity.Asnoticed already, clause(b)makesitclearinnouncertaintermsthatthisisataxon 'persons'.Itsincidence fallsonindividuals, whobelong toaclass practicinganyprofessionorart;orcarryingonatradeorcallingin themunicipality.Toholdthatpersonswhoarecollectivelycarrying onatradeinthemunicipalitycannotbetaxedindividually,would betoreadintothestatutewordswhicharenotthere.Thereareno wordsinclause(b)orelsewhereinthestatutewhich,expresslyor bynecessaryimplication,excludeorexemptpersonscarryingona trade collectively in the municipality from being taxed as individuals. To attract liability to a tax under this clause, it is sufficientthatthepersonconcernediscarryingonatradeinthe municipality,irrespectiveofwhethersuchtradeisbeingcarriedon byhimindividuallyorinpartnershipwithothers.Thus,boththe conditions necessary for levying a tax under [SECTION]
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Theappellantsare"persons"andtheyarecarryingonatradein ChhehartaMunicipality.
9.3Byplacingrelianceontheobservationsmadeinpara18,thelearned counselsubmittedthatafirmorpartnershipisnotalegalentityseparate anddistinctfromthepartners.
10 In MahabirColdStorage(supra), the appeal before the Supreme Court was filed by the appellant assessee against the judgment of the DivisionBench,PatnamadeintheTaxCaseansweringinfavourofthe Revenue and against the Assessee. In the said case, the assessee was a registeredpartnershipfirm.Inpara11,theCourtobservedasunder:
11.Thecrucialquestion,therefore,iswhethertheappellantisthe ownerofthemachineryandplantintherelevantassessmentyear 196263.Acquisitionofownershipisaconditionprecedenttoavail ofthedevelopmentrebateunderS.33(1)oftheAct.Itisnowfairly clear from the statement of facts that the old and the new partnershipfirmsareseparatelyregisteredundertheActandthe old one was doing its business at Calcutta and the new one at Purnea.Theyhavebeenseparatelybeingassessedasindependent assessable entities. Only the new firm alone was reconstituted consisting ofthetwopartners oftheoldfirm M/s.[ENTITY] Hanumanmal and Periwal and Co. (P.) Ltd. [ENTITY] and Hanumanmalindividuallyareentitledto25percentshareseach fortheprofitsintheappellantfirmandPeriwalandCo.(P.)Ltd. has50percentsharesofprofit.UndertheIndianPartnershipAct, '1932thepartnershipfirmregisteredthereunderisneitheraperson noralegalentity.Itismerelyacollectivenamefortheindividual membersofthepartnership.Afirmassuchcannotbeapartnerin anotherfirmthoughitspartnersmaybepartnersinanotherfirm intheirindividualcapacity.EitherundertherepealedActorthe Act,afirmisliabletobeseparatelyassessedtotaxaswellasallits partners in their capacity as individuals if they have taxable income.TheappellantisseparatelyregisteredunderS.26Aofthe Act and assessed to tax from the assessment year 196061 and onwards. There is no reconstitution of the original firm PrayagechandHanumanmalinductingPeriwal,andCo.(P.)Ltd.as itspartner. Thus itisclear thatthe appellant assessee isanew identityundertheAct.Itisnotasuccessorininterestoftheold firmaspertheprovisionsoftheAct.Thequestiontheniswhether theassesseeisentitledtodevelopmentrebateunderS.33(1)ofthe Act.(UnderS.10(1)(vib)oftherepealedAct).Section33(1)gives righttodevelopmentrebateonlytotheownerwhohasacquiredthe shiporinstalledthemachineryorplant.Thenecessaryimplication isthattheassesseewhoclaimsdevelopmentrebateshouldcontinue HC-NIC Page 6 of 15 Created On Tue Aug 15 20:58:19 IST 2017 [CASE NUMBER] ORDER toremaintobetheowneroftheshiporplantormachineryduring therelevantpreviousassessmentyear/yearsandtheowneraloneis entitledtothedevelopmentrebatetillitbecomesnilintherelevant previousassessmentyearorthesucceedingassessmentyearscarried forwardupto8yearsandnotthereafter.
11In ComptrollerandAuditorGeneral(supra), theissuebeforethe SupremeCourtwaswhethertherespondentbeingaproprietaryconcern waseligibleforbeingbroughtonthepanelforauditworkofgovernment companies and concerns. The auditworkofthegovernment and public undertakings was assigned to only those Chartered Accountant firms which were enrolled on the panel maintained by the appellant. The appellantthroughanadvertisementinvitedapplicationsfromthefirmsof theCharteredAccountantsforthepurposeofempanelmentforauditofthe government companies. The respondent therein had submitted an application for enrollment on the panel, but the same was rejected on account of the fact that his firm was not a partnership firm, but a proprietary concern. Aggrieved, the respondent filed a writ application underArticle226oftheConstitutionofIndiachallengingtheexclusionof theproprietaryconcernsfromtheirempanelmentasbeingdiscriminatory, arbitraryandviolativeofArticle14oftheConstitution.ThelearnedSingle Judge of this High Court allowed the writ petition. The Letters Patent AppealbeforetheDivisionBenchwasalsodismissed.TheComptrollerand Auditor General preferred an appeal before the Supreme Court. The SupremeCourt,whiledismissingtheappeal,observedinpara9asunder:
9.TheappellantinsiststhatitisonlyasmallergroupofChartered Accountantsfirmsthatwouldbeeligibleforbeingbroughtonthe panel for audit of public sector undertakings or Government concerns.Theauditworkofpublicsectorundertaking,nodoubt,is tobe done bythe qualified and efficient Chartered Accountants.
Onceapersonisqualified,experiencedandefficient,itisdifficultto understand how he could be discriminated against only for the reasonthathehaschosentoactaloneintheprofessionalcareer andhasnotbeenabletoformapartnershipfirm.Theefficiency,as pointed out by the High Court, springs from the personal experience,proficiencyandpersonalcapacities.Itis,therefore,not possibletolinkthesecharacteristicsandprofessionalacumentoa personorpersonsinafirmalone.Asingleindividualasanauditor in a proprietary concern can have such characteristics and professionalacumenbyhimselfandalsothroughtheassistanceof experiencedauditorwhocouldbeinhisservicesasefficientasany partnershipfirm.Itisoftenseeninmanycasesthatsomeofthe partners of the partnership firm are sleeping partners with no professional duties to discharge. A partnership concern is not a legalentitylikecompany;itisagroupofindividualpartners.Ina HC-NIC Page 7 of 15 Created On Tue Aug 15 20:58:19 IST 2017 [CASE NUMBER] ORDER partnershipfirm,itisthepartnerwhowillbeassistedincarrying outtheworkbutquiteremainstheeligibleCharteredAccountant. It is the same situation as in a proprietary concern where a CharteredAccountantwouldbecarryingonauditworkallinone. MerelybecausesomeoftheCharteredAccountantshaveformeda partnership firm, it cannot be assumed that they become more efficientforcarryingoutauditworkthantheindividualChartered Accountantwhoformsproprietaryconcern.Itis,therefore,evident that the appellant himself erroneously assumed that the partnershipfirmsaremoreefficientthantheproprietaryconcernin thematterofauditofaccountsofthepublicsectorundertakingsor oftheGovernmentconcerns.
12InBachaF.Guzdar(supra),theargumentbeforetheSupremeCourt wasthatthepossessionoftheshareholdersinacompanywasanalogous to that of partners inter se. While holding the analogy is wholly inaccurate,theSupremeCourtobserved,inpara9,asunder:
9.Itwasarguedthatthepositionofshareholdersinacompanyis analogous to that of partners 'inter se.' This analogy is wholly inaccurate. Partnership is merely an association of persons for carryingonthebusinessofpartnershipandinlawthefirm'sname is a compendious method of describing the partners. Such is, however, not the case ofacompany which stands asaseparate juristicentitydistinctfromtheshareholders.InHalsbury'sLawsof England, Vol. 6 (3rd Ed), page 234, the law regarding the attributesofsharesisthusstated:
"Ashareisarighttoaspecifiedamountofthesharecapital ofacompanycarryingwithitcertainrightsandliabilities whilethecompanyisagoingconcernandinitswindingup. Thesharesorotherinterestofanymemberinacompany arepersonalestatetransferableinthemannerprovidedby itsarticles,andarenotofthenatureofrealestate".
13In V.Subramaniam(supra),theappealbeforetheSupreme Court aroseofasuitfiledbeforetheBombayCityCivilCourtinstitutedbythe appellant praying for dissolution of an unregistered partnership firm between the appellant and the respondent. In that suit, a defence was takenthatthesuitwasnotmaintainableinviewofSubsection(2A)of [SECTION] Act,1932. The BombayCityCivil CourttooktheviewthatSubsection(2A),whichwasintroducedbythe Maharastra Amendment toSection 69 of the Act, was unconstitutional beingviolativeofArticles14and19(1)(g)oftheConstitutionofIndia. TheBombayCityCivilCourtmadeareferenceinthatregardtotheHigh CourtunderSection113oftheCodeofCivilProcedure.TheHighCourt, HC-NIC Page 8 of 15 Created On Tue Aug 15 20:58:19 IST 2017 [CASE NUMBER] ORDER held [SECTION] not unconstitutional. The appealcameupbeforetheSupreme Court.Afternoticing Section69(1) and(2)ofthePartnershipActaswellasSubsection(2A)introducedby theMaharashtraAmendment1984,theCourtobservedinparas14and 17asunder:
14.Itmaybementionedthatapartnershipfirm,unlikeacompany [ACT]isnotadistinctlegal entity, and is only a compendium of its partners. Even the registrationofafirmdoesnotmeanthatitbecomesadistinctlegal entitylikeacompany.Hencethepartnersofafirmarecoowners ofthepropertyofthefirm,unlikeshareholdersinacompanywho arenotcoownersofthepropertyofthecompany.
17. Ithasalreadybeenmentionedabovethatapartnershipfirm, whether registered or unregistered, is not a distinct legal entity, andhencethepropertyofthefirmreallybelongstothepartnersof the firm. Subsection (2A) virtually deprives a partner in an unregisteredfirmfromrecoveryofhisshareinthepropertyofthe firmorfromseekingdissolutionofthefirm.
14 What is discernible from a conspectus of the authorities referred to aboveisthatapartnershipfirm,unlikeacompanyregisteredunderthe [ACT]isnotadistinctlegalentityorajuristicperson,but isonlyacompendiumofitspartners.Eventheregistrationofafirmwould notmakeitadistinctlegalentitylikeacompany.Thepartnersofafirm are coowners of the proprietary firm, unlike the shareholders in a companywhoarenotcoownersofthepropertyofthecompany.
15However,thepositionofapartnershipfirmsofarasSection138read withSection141oftheNegotiableInstrumentsActisconcernedappearsto bealtogetherdifferent.Section141oftheActreadsasunder:
141.Offencesbycompanies (1) If the person committing an offence under [SECTION] is a company,everypersonwho,atthetimetheoffencewascommitted, was in charge of, and was responsible to the company for the conductofthebusinessofthecompany,aswellasthecompany, shallbedeemedtobeguiltyoftheoffenceandshallbeliabletobe proceededagainstandpunishedaccordingly.
Provided that nothing contained in this subsection shall render anypersonliabletopunishmentifheprovesthattheoffencewas committedwithouthisknowledge,orthathehadexercisedalldue diligencetopreventthecommissionofsuchoffence:
HC-NIC Page 9 of 15 Created On Tue Aug 15 20:58:19 IST 2017 [CASE NUMBER] ORDER [ProvidedfurtherthatwhereapersonisnominatedasaDirectorof acompanybyvirtueofhisholdinganyofficeoremploymentinthe Central Government or State Government or a financial corporationownedorcontrolledbytheCentralGovernmentorthe StateGovernment, asthecasemaybe,heshallnotbeliablefor prosecutionunderthisChapter.] (2)Notwithstandinganythingcontainedinsubsection(1),where anyoffenceunderthisActhasbeencommittedbyacompanyandit isprovedthattheoffencehasbeencommittedwiththeconsentor connivanceof,orisattributableto,anyneglectonthepartof,any director,manager,secretaryorotherofficerofthecompany,such director,manager,secretaryorotherofficershallalsobedeemedto beguiltyofthatoffenceandshallbeliabletobeproceededagainst andpunishedaccordingly.
Explanation.Forthepurposesofthissection.
(a)"company"meansanybodycorporationandincludesafirmor otherassociationofindividuals;and
(b)"director",inrelationtoafirm,meansapartnerinthefirm.
16 [SECTION] ofthe Act provides that ifaperson committinganoffenceunderthesectionisacompany,everypersonwho, atthetimeoffencewascommitted,wasinchargeof,andwasresponsible to,thecompanyfortheconductofthebusinessofthecompany,aswellas thecompanyshallbedeemedtobeguiltyoftheoffenceandshallbeliable tobeproceededagainstandpunishedaccordingly.Theoffenderin[SECTION]oftheActisthedrawerofthecheque.Healonewouldhavebeenthe offender thereunder if the Act did not contain other provisions. It is becauseofsection141oftheActthatpenalliabilityundersection138is cast on other persons connected with the company. Three categories of personscanbediscernedfromthesaidprovisionwhoarebroughtwithin thepurviewofthepenalliabilitythroughthelegalfictionenvisagedinthe section. They are: (1) The company the principal offender which committed the offence, (2) Every one who was in charge of and was responsibleforthebusinessofthecompany,(3)Anyotherpersonwhoisa directororamanagerorasecretaryorofficerofthecompany,withwhose 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 punishmentunderthissection.Subsection(2)furtherprovidesthatwhere anyoffence under thisActhasbeencommitted byacompany and itis HC-NIC Page 10 of 15 Created On Tue Aug 15 20:58:19 IST 2017 [CASE NUMBER] ORDER provided that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director,manager,secretaryorotherofficerofthecompany,suchdirector, manager,secretaryorotherofficershallalsobedeemedtobeguiltyofthat offence and shall be liable to be proceeded against and punished accordingly.TheExplanationtothesectiondefinescompanyasanybody corporate and includes a firm or other association of individuals; and director,inrelationtoafirm,meansapartnerinthefirm.
17Itisonlythedrawerofthecheque,whocanbeheldresponsibleforan offence under [SECTION] of the Act. [SECTION] provides for the constructive liability. It postulates that a person, in charge of and responsibletothecompany,inthecontextofthebusinessofthecompany, shallalsobedeemedguiltyoftheoffence.Thedrawercanbeacompany,a firmoranassociationofindividuals,butonlythosedirectors,partners,or officerscanbeheldresponsiblefortheoffence punishableunder[SECTION]oftheAct,whoareresponsibletothecompanyfirmfortheconductof itsbusiness.
18TheLegislaturehasthoughtfittoprovideanexplanation in[SECTION]oftheActandtheplainreadingoftheexpressioncompanyasusedin Subclause (a) of the explanation appended to [SECTION] of the Act showsthatitisaninclusiveofanybodycorporateorotherassociationof individuals.ThoughtheheadingofSection141oftheActreadsoffences by companies; according to the explanation to that Section, company means any body corporate and includes a firm or other association of individualsanddirector,inrelationtoafirmmeansapartnerinthefirm. Thetermotherassociationofindividualsshouldnotbeunderstoodtorefer even to informal understanding between the individuals. It has to be understood inthecontextofbodycorporate andpartnership firms.The principalofejusdemgenerisgetsattractedinsuchacase.Therefore,asole proprietaryconcernisnotacompanywithinthemeaningofcompanyas definedundertheexplanationtoSection141oftheAct.
19TheExplanationtoSection141makesitclearthatwhereverthereisa referenceunderSection141toacompanyithastobesubstitutedbythe wordfirmwheretheaccusedisapartnershipfirmandtheprovisionhasto bereadasifitreferstothefirm.Whatthismeansisthatacomplaintcan befiledfortheoffenceunderSection138NegotiableInstrumentsActnot onlyagainstthepartnershipfirmonwhosebehalfthechequewasissued butalsoagainstanindividualpartnerorpersonwho,atthetimeofthe commission of the offence, was in charge of the affairs of the firm or responsibletoitfortheconductofitsbusiness.There isnothing inthe provisionwhichindicatesthatineverycomplaintinvolvingthedishonour ofachequeissuedbyafirmboththefirmaswellasitspartnershavetobe compulsorily impleaded. In other words acomplaint in which only the firmismadeanaccusedandthepartnersarenotwouldnotbebadinlaw HC-NIC Page 11 of 15 Created On Tue Aug 15 20:58:19 IST 2017 [CASE NUMBER] ORDER forthatreason.ClearlythatisnottheintentionoftheParliament.
20Apartnership firmisaseparate legalentityinterms ofthe [ACT]Thatis how under various statutes like the [ACT], the [ACT], the [ACT] and [SECTION] [ACT]afirmcanbeproceededagainstassuch.Itisperfectly possibleforacomplainant,aggrievedbythedishonourofachequeissued byorbehalfofafirm,tofileacomplaintfortheoffenceunderSection138 [ACT].Thecomplainantmay choose not toproceed against the individual partners as accused either becauseheisnotawareastowhoarethepartnersorisnotinterestedin proceedingagainstthepartnersapartfromthefirm.
21 It is now well settled that an Explanation added to a statutory provisionisnotasubstantiveprovisioninanysenseofthetermbutasthe plainmeaningoftheworditselfshowsitismerelymeanttoexplainor clarify certain ambiguities which may have crept in the statutory provision. Sarathi in 'Interpretation of Statutes' while dwelling on the variousaspectofanExplanationobservesasfollows:
"(a)TheobjectofanexplanationistounderstandtheActinthe lightoftheexplanation.
(b)Itdoesnotordinarilyenlargethescopeoftheoriginalsection which it explains, but only makes the meaning clear beyond dispute."
22Swarupin'LegislationandInterpretation'veryaptlysumsupthescope andeffectofanExplanationthus:
"Sometimesanexplanationisappendedtostressuponaparticular thing which ordinarily would not appear clearly from the provisionsofthesection.Theproperfunctionofanexplanationis to make plain or elucidate what is enacted in the substantive provisionandnottoaddorsubtractfromit.Thusanexplanation does not either restrict or extend the enacting part; it does not enlargeornarrowdownthescopeoftheoriginalsectionthatitis supposed to explain The Explanation must be interpreted accordingtoitsowntenor;thatitismeanttoexplainandnotvice versa."
23Bindrain'InterpretationofStatutes'(5thEdn.)atpage67statesthus:
"Anexplanationdoesnotenlargethescopeoftheoriginalsection thatitissupposedtoexplain.Itisaxiomaticthatanexplanation HC-NIC Page 12 of 15 Created On Tue Aug 15 20:58:19 IST 2017 [CASE NUMBER] ORDER only explains and does not expand or add to the scope of the originalsection Thepurposeofanexplanationis,however,not tolimitthescopeofthemainprovision Theconstructionofthe explanation must depend upon its terms, and no theory of its purpose can be entertained unless it is to be inferred from the languageused.An'explanation'mustbeinterpretedaccordingtoits owntenor."
24Theprincipleslaiddownbytheaforesaidauthorsarefullysupported by various authorities of the Supreme Court. In Burmah Shell Oil StorageandDistributingCo.ofIndiaLtd.v.CommercialTaxOfficer [[PRECEDENT]], a Constitution Bench decisionoftheSupremeCourtobservedthus:
"Now, the Explanation must be interpreted according to its own tenor,anditismeanttoexplaincl.(1)(a)oftheArticleandnot viceversa.ItisanerrortoexplaintheExplanationwiththeaidof theArticle,becausethisreversestheirroles."
[PRECEDENT] theSupreme Courtobservedthus:
"TheExplanationmustbereadsoastoharmonisewithandclear upanyambiguityinthemainsection.Itshouldnotbesoconstrued astowidentheambitofthesection."
26In [PRECEDENT], theSupremeCourtobservedthus:
"Onthebasis,ofthelanguageoftheExplanationthisCourtheld thatitdidnotwidenthescopeofclause(c).Butfromwhathas beensaidinthecase,itisclear thatifonatrue reading ofan Explanationitappearsthatithaswidenedthescopeofthemain section,effectbegiventolegislativeintentnotwithstandingthefact thatthelegislaturenamedthatprovisionasanExplanation."
[PRECEDENT]
"Itistruethattheorthodoxfunctionofanexplanationistoexplain the meaning and effect of the main provision to which it is an explanation and toclear up any doubt or ambiguity init Therefore,eventhoughtheprovisioninquestionhasbeencalledan HC-NIC Page 13 of 15 Created On Tue Aug 15 20:58:19 IST 2017 [CASE NUMBER] ORDER Explanation,wemustconstrue itaccordingtoitsplainlanguage andnotonanyaprioriconsiderations."
28 Thus, from a conspectus of the authorities referred to above, it is manifestthattheobjectofanExplanationtoastatutoryprovisionis
(a)toexplainthemeaningandintendmentoftheActitself,
(b) where there is any obscurity or vagueness in the main enactment,toclarifythesamesoastomakeitconsistentwiththe dominantobjectwhichitseemstosubserve,
(c)toprovideanadditionalsupporttothedominantobjectofthe Actinordertomakeitmeaningfulandpurposeful,
(d)anExplanationcannotinanywayinterferewithorchangethe enactmentoranypartthereofbutwheresomegapisleftwhichis relevantforthepurposeoftheExplanation,inordertosuppressthe mischiefandadvancetheobjectoftheActitcanhelporassistthe Court in interpreting the true purport and intendment of the enactment,and
(e)itcannot,however,takeawayastatutoryrightwithwhichany person under a statute has been clothed or set at naught the workingofanActbybecominganhindranceintheinterpretation ofthesame.
Thefirstquestionisansweredaccordinglyintheaffirmative."
8 LetmetesttheargumentofMr.[ENTITY].Let meassumeforthemomentthatthepartnershipfirmisnotalegalentity, andtherefore,itisnotnecessarytoarraignthepartnershipfirmasan accused in the complainant. If that be so, then how can the other partnersbeprosecutedfortheoffencepunishableunderSection138of theNegotiableInstrumentsAct,moreparticularly,whentheyhavenot signedthecheques.
9 Itisonlythedrawerofthecheque,whocanbeheldresponsible forthedishonourofthecheque.Thelaw,inthisregard,iswellsettled.
HC-NIC Page 14 of 15 Created On Tue Aug 15 20:58:19 IST 2017 [CASE NUMBER] ORDER
InthecaseofMrs.[ENTITY].M/s.ShethDevelopersPvt.Ltd. andanother[AIR2013SC3210],theSupremeCourthasobservedin somanywordsthatitisonlythedrawerofthechequewhocanbeheld responsible. If the other partners are to be held responsible for the dishonour,thentheycanbeheldresponsibleonlybyfasteningvicarious liabilityunderSection141oftheNegotiableInstrumentsActandthisis permissibleonlyifthefirmisalegalentity.
10 Onthisgroundalone,theproceedingsdeservetobequashedso farastheapplicanthereinisconcerned.
11 Intheresult,boththeapplicationssucceedandareallowed.The proceedingsoftheCriminalCasesNos.1073of2015and1074of2015 respectivelypendingintheCourtofthelearnedJudicialMagistrateFirst Class, Dhanera, District: Banaskantha are quashed. Rule is made absolute.Directserviceispermitted.
([ENTITY], J.) chandresh HC-NIC Page 15 of 15 Created On Tue Aug 15 20:58:19 IST 2017