Partners Can Be Prosecuted Under section 138 NI Act Without Naming the Firm: SC Ruling on Section 138 NI Act
Dhanasingh Prabhu v. Chandrasekar & Another (2025 INSC 831)
Issue: Whether a complaint under Section 138 NI Act is maintainable against individual partners when the partnership firm is neither served a notice nor named as an accused.
Background Facts:
- Dhanasingh Prabhu advanced a loan of ₹21 lakhs to a partnership firm named Mouriya Coirs.
- The firm issued a cheque, which was dishonoured upon presentation.
- The statutory demand notice under Section 138(b) was sent only to the partners, not to the firm.
- The criminal complaint was filed under Section 138 of the Negotiable Instruments Act (NI Act), but the firm was not arrayed as an accused — only the partners were.
The Madras High Court quashed the complaint, holding that non-impleadment of the firm was a fatal defect. The complainant appealed to the Supreme Court.
Supreme Court Ruling:
The Supreme Court reversed the High Court’s decision and held that:
1. Partners Can Be Prosecuted Without Impleading the Firm
A complaint under Section 138 NI Act can be maintained against individual partners even if the partnership firm is not separately named as an accused.
This is because a partnership firm is not a separate legal entity — it is merely a collective name for the partners who compose it. Therefore, naming the partners individually satisfies the legal requirement.
2. Notice to Partners = Notice to Firm
Issuing a statutory notice under Section 138(b) to the partners is deemed sufficient notice to the firm.
The Court made it clear that since the partners and the firm are not separate entities, serving notice on partners is legally effective notice on the firm itself. Thus, failure to send a separate notice to the firm does not vitiate the proceedings.
3. No Need to Apply Company Law Logic to Partnerships
The Court distinguished partnership firms from companies:
- In company cases (like Aneeta Hada v. Godfather Travels), the company must be made an accused before vicarious liability can be fastened on its directors.
- But in a partnership, liability is not vicarious — partners are personally and jointly/severally liable for acts done by or on behalf of the firm.
4. Impleading the Firm is Permissible but Not Mandatory
While the Court allowed the complainant to add the firm as an accused for clarity and completeness, it held that the absence of the firm from the complaint is not a ground to quash the proceedings against the partners.
Key Legal Principles Clarified
Legal Point | Clarification |
Partnership firm’s identity | It is not a separate legal entity distinct from its partners. |
Partner liability | Partners are personally liable under Section 138. |
Notice requirement | Notice to partners equals notice to the firm. |
Impleading the firm | Not mandatory to prosecute the firm to proceed against partners. |
Distinction from companies | Company law principles on vicarious liability do not apply to partnerships. |
Impact of the Judgment
- Complainants no longer need to worry if they failed to name the firm or serve it a separate notice — as long as the partners are correctly named and served.
- Partners cannot escape liability by pointing out technical omissions in notice or complaint formatting.
- Courts should prioritize substantive justice over procedural formality in cheque dishonour cases involving partnerships.
Conclusion:
The Supreme Court in Dhanasingh Prabhu v. Chandrasekar & Another has settled the law:
In a prosecution under Section 138 of the Negotiable Instruments Act involving a partnership firm, naming and serving the partners is sufficient. The complaint need not separately name or serve the firm. Partners are directly and personally liable.
This ruling ensures that technicalities do not defeat the objective of the law — holding accountable those who issue dishonoured cheques. It’s a clear and practical interpretation that strengthens the effectiveness of Section 138, particularly in business transactions involving partnerships.