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Whether An Unregistered Partnership Firm Reserves A Right To File A Complaint Under Section 138 Of The Negotiable Instrument Act, 1881: A Detailed Analysis

Negotiable instruments have played a pivotal role as an acceptable mode of payment across the commercial arena. In the Indian context, the law related to dealing with negotiable instruments such as promissory notes, cheques, and bills of exchange is covered by The Negotiable Instrument Act, 1881. The act was further strengthened by the insertion of Section 138 to 142 by the Banking Public Financial Institutions and Negotiable Instruments Clause (Amendment) Act, 1988 to address the need to regulate the growing business, trade, commerce, and industrial activities of the country and the strict liability to promote greater vigilance in financial matters and to safeguard the faith of the creditor in the drawer of the cheque which is essential to the economic life of a developing country like India. In this article, an attempt is made to discuss the legal position of an unregistered partnership firm while instituting a complaint under section 138 of the Negotiable Instrument Act,1881.

According to section 138 of the Negotiable Instrument Act, of 1881, the following are the essential ingredients to constitute an offence under the said act:
  • The cheque must have been issued to discharge a legally enforceable debt or liability.
  • The cheque must be presented within three months or within the validity period, whichever is earlier.
  • The cheque must be returned unpaid due to insufficiency of funds.
  • The fact of dishonor is informed to the drawer by notice within 30 days.
  • The drawer of the cheque must fail to make payment within 15 days of receipt of the notice.

Section 69 of the Indian Partnership Act, 1932 iterates the effect of non-registration of a partnership deed. According to Section 69(2) of the Indian Partnership Act, "No suit to enforce a right arising from a contract shall be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm."

The scope of section 69(2) of the Indian Partnership Act was put to the test in the case of "Kamal Pushp Enterprises versus D.R. Construction Company" wherein the applicability of this section in Arbitration proceedings was inferred. It was observed that "The prohibition contained in Section 69 is in respect of instituting a proceeding to enforce a right arising from a contract in any Court by an unregistered firm, and it had no application to the proceedings before an Arbitrator.....".

In the case of "Beacon Industries versus Anupam Ghosh, the court opined that "A careful reading of Section 69(2) of the Partnership Act clearly shows that an unregistered partnership firm is barred from filing a civil suit and there is no bar as such to file a private complaint and it is purely criminal liability on the part of the person who has issued the cheque. Even if the cheque issued by a partner of an unregistered firm for legally recoverable debt or otherwise and if such cheque dishonoured when it was presented for encashment, it amounts to criminal liability."

Further, in the case of Abdul Gafoor v. Abdurahiman, 1999(4) Crimes 98 (Ker.) the Kerala High Court held that "an unregistered Partnership firm can prosecute complaint under Section 138 of the Negotiable Instruments Act and the effect of non-registration of the firm under Section 69 of the Partnership Act is applicable only to a case involving civil rights".

A criminal prosecution is not intended to obtain money or enforce security, etc. A conviction and punishment based on proof of guilt in properly handled criminal procedures are the consequences of violating Section 138 of the Negotiable Instruments Act. After the Section 138 offence is established, the prosecution process may commence to hold the offender accountable for their actions rather than to recover the money covered by the check.

In the case of Gurcharan Singh vs State Of U.P. And Anr, it was highlighted that "the action under Section 138 is not a suit by the indorsee to enforce a right arising out of a contract and, therefore, the bar under Section 69(2) of the Partnership Act will not operate in such a case". Similar contentions were also corroborated in the case of Gowri Containers versus S C Shetty � ILR 2007 Kar 4586.

Thus from the above discussion, it is evident that an unregistered partnership firm can file a complaint for the offence under section 138 of the Negotiable Instrument Act, 1881, and the bar imposed pursuant to section 69(2) of the Indian Partnership Act, 1932 is only restricted to civil suits.

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