The Delhi High Court, in a significant ruling, has held that the non-impleadment of a partnership firm as an accused in a criminal complaint under Section 138 of the Negotiable Instruments Act, 1881, is a “curable defect” and not a fatal flaw that would warrant the quashing of the proceedings. Justice Amit Mahajan dismissed a petition seeking to quash a cheque dishonour case, permitting the complainant to amend the complaint to include the partnership firm, subject to payment of costs.
The Court was adjudicating a petition filed by Himanshu, a partner in A & A Enterprises, to quash Complaint Case No. 2542/2019, which was initiated against him in his personal capacity for the dishonour of two cheques.
Background of the Case
The dispute arose from a Franchisee Agreement dated December 28, 2012, between TCNS Clothing Co. Ltd. (the complainant) and A & A Enterprises for the operation of a retail outlet. The complainant alleged that A & A Enterprises owed a sum of ₹38,11,873.
In discharge of this liability, two cheques—one for ₹10,00,000 dated September 27, 2018, and another for ₹7,50,000 dated September 30, 2018—were issued in favour of the complainant. Both cheques were drawn on an account belonging to A & A Enterprises. The cheques were dishonoured upon presentation on December 21, 2018, with the reason “Funds Insufficient.”
Following the dishonour, the complainant sent a legal notice on January 14, 2019, to Himanshu, demanding payment. Upon his failure to comply, TCNS Clothing filed a criminal complaint under Section 138 of the NI Act, naming “Sh. Himanshu (Proprietor of A and A Enterprises)” as the accused. The learned Metropolitan Magistrate took cognizance and issued summons on March 5, 2019. The petitioner, Himanshu, subsequently challenged these proceedings before the High Court.
Arguments of the Parties
The petitioner was represented by a team of advocates including Mr. Gagan Gandhi, Mr. Vijay Kumar, Dr. B.S. Chauhan, Ms. Luvika, and Ms. Shraddha Saxena. They argued that the complaint was not maintainable against him in his personal capacity. The core submissions were:
- A & A Enterprises is a partnership firm, and he is merely a partner, not the sole proprietor as alleged in the complaint.
- The primary entity, the partnership firm, which issued the cheques, was not arraigned as an accused in the complaint, which is a mandatory requirement for invoking vicarious liability against a partner under Section 141 of the NI Act.
- The statutory demand notice was issued to him in his individual capacity, not to the firm.
- He had neither signed nor issued the cheques in question.
The petitioner relied on the Supreme Court’s judgments in Aneeta Hada v. Godfather Travels & Tours (P) Ltd. and Himanshu v. B. Shivamurthy, which established that a prosecution against a director or partner is not maintainable without the company or firm being made an accused.
The respondent, TCNS Clothing Co. Ltd., was represented by Mr. Nitin Sharma, Advocate, along with Mr. Jatin Kumar, the Authorised Representative. They countered that:
- The petitioner had represented himself as the sole proprietor of A & A Enterprises in the Franchisee Agreement.
- The legal notice was duly served upon the petitioner and was also sent via email to A & A Enterprises, which the petitioner acknowledged in a reply.
- The failure to implead the firm was a “simple infirmity” that could be cured by amending the complaint at any stage, and it did not change the fundamental nature of the case.
The Court’s Analysis and Decision
After considering the arguments and the submissions of the Amicus Curiae, Senior Advocate Mr. Ashish Mohan, the Court proceeded to analyze the legal position. Justice Mahajan noted that while the Supreme Court in Aneeta Hada held that arraigning the company as an accused is imperative for maintaining a prosecution under Section 141 of the Act, it had also considered cases where amendments were permitted for “curable legal infirmities.”
The Court observed a factual dispute, noting that the copy of the Franchisee Agreement placed on record by the petitioner described A & A Enterprises as a “partnership firm,” whereas the copy submitted by the respondent referred to it as a “proprietorship firm.”
Addressing the petitioner’s argument about a defective notice date, the court dismissed it as a “typographical error,” since the notice mentioned the cheque dishonour date of December 21, 2018, making it clear that the notice was from 2019, not 2018.
The central issue, the Court identified, was whether the non-arraignment of the firm was a curable defect. The judgment stated, “Prima facie, the arraignment of the petitioner in his individual capacity, without impleading the firm, is inconsistent with the settled position of law as laid down in Aneeta Hada v. Godfather Travels & Tours (P) Ltd. (supra).”
However, relying on the Supreme Court’s dictum in U.P. Pollution Control Board v. Modi Distillery and S.R. Sukumar v. S. Sunaad Raghuram, the Court held that an amendment can be permitted if it relates to a simple, curable infirmity and causes no prejudice to the accused.
Justice Mahajan reasoned that since the trial had not effectively commenced—the petitioner had not faced plea recording, evidence, or cross-examination—allowing an amendment to implead the firm would not cause prejudice. The Court opined, “refusal to allow such an amendment would result in stifling of proceedings on a mere technicality, thereby defeating the object of Section 138 of the NI Act.”
The Court concluded that the non-impleadment was a curable defect and permitted the complainant to file an application to amend the complaint. However, noting the significant delay since the complaint was filed in 2019, which was “largely be attributed to the complainant,” the Court balanced the equities by imposing costs.
The final order stated: “the present petition stands dismissed with the aforesaid directions.” The respondent/complainant was granted two months to file an application for amendment, subject to the payment of compensatory costs of ₹35,000 to the petitioner.
