SC Clarifies: Partnership Firm Not Distinct Entity; Partners’ Joint and Personal Liability Upheld for Cheque Dishonour

The Supreme Court clarified that a partnership firm is not a distinct legal entity and upheld that partners bear joint and personal liability for the dishonour of a cheque.

The Supreme Court Bench comprising Justice B.V. Nagarathna and Justice Satish Chandra Sharma, while adjudicating a criminal appeal, recently held that a partnership firm, not being a separate juristic entity, is merely a compendious expression for its partners; therefore, non-impleadment of the firm or absence of statutory notice in its name under Section 138 of the Negotiable Instruments Act, 1881, does not render the proceedings against the partners invalid, as they are jointly and severally liable for acts done in the firm’s name.

The Supreme Court, in a significant ruling, allowed a criminal appeal against the Madras High Court’s order dated 26.02.2024, holding that a complaint under Section 138 of the Negotiable Instruments Act, 1881, against the partners of a firm was not rendered non-maintainable merely due to the non-impleadment of the partnership firm or the absence of a statutory notice in the firm’s name. The Court found that the cheque in question was issued in the firm’s name and signed by a partner, and both partners were served with individual notices and named as accused in the complaint. Emphasising the nature of partnerships, the Court reiterated that a partnership firm has no independent legal personality distinct from its partners, and that prosecution of the partners—who are jointly and severally liable—is sufficient to maintain the complaint.

In doing so, the Court distinguished the facts from its earlier rulings in Aneeta Hada v. Godfather Travels and Tours Private Limited, REEDLAW 2012 SC 04001 and Dilip Hariramani v. Bank of Baroda, which were applicable to companies, not firms. The Court underscored that while companies are separate juristic entities capable of being sued independently of their directors, a partnership firm exists only through its partners and has no identity without them. Therefore, the partners, not the firm per se, bear legal responsibility, and any liability arising from the dishonour of a cheque issued by the firm binds its partners personally and directly, not vicariously.

The Court delved into the jurisprudence of Indian partnership law, tracing its evolution from the Indian Contract Act, 1872, to the Indian Partnership Act, 1932, and later the Limited Liability Partnership Act, 2008. It reiterated that the legal foundation of partnership is agency, and that Section 4 of the Partnership Act introduced the principle of mutual agency, whereby each partner acts for and on behalf of the firm. The judgment clarified that the term “firm” is simply a compendious expression for its partners, and a “firm name” is merely a commercial label. In contrast to a company, a firm does not enjoy perpetual succession and is dissolved upon the death or withdrawal of a partner, unless otherwise agreed.

The Supreme Court also reaffirmed the settled position in decisions like Dulichand Laxminarayan v. CIT and CIT v. R.M. Chidambaram Pillai that a firm is not a legal person. Relying on landmark English and Indian precedents such as Salomon v. Salomon & Co. and Bacha F. Guzdar v. CIT, the Court emphasised the doctrinal and legal divide between companies and partnerships. While companies have a corporate personality distinct from shareholders, firms are inseparable from their partners. The Court highlighted that a firm’s property is jointly owned by partners, unlike company property, which belongs to the company, not its shareholders.

In conclusion, the Supreme Court held that the prosecution of the partners was legally sufficient and the absence of the firm as a named accused did not vitiate the complaint. It permitted the complainant to implead the firm, Mouriya Coirs, as an additional accused for procedural completeness, and set aside the High Court’s quashing order. The complaint was restored for trial before the Magistrate, reaffirming the joint and several liability of partners under the NI Act and the non-juristic status of a partnership firm.

Mr. Sabarish Subramanian, Advocate on Record, represented the Appellant.

Mr. S. Nagamuthu, Senior Advocate, appeared for the Respondents.

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REEDLAW 2025 SC 07008