Partners Not Separate From Firm; Liability Is Joint & Several: Allahabad High Court Refuses To Quash NI Act Case Against 'Sleeping Partners'

Observing that a partnership firm has no separate legal recognition in the absence of its partners, the Allahabad High Court (Lucknow Bench) recently refused to quash proceedings under Section 138 of the Negotiable Instruments Act against two women who claimed to be 'sleeping partners' acting through a Power of Attorney holder. Thus, dismissing two connected petitions filed u/s 482 CrPC (Section 528 BNSS), Justice Brij Raj Singh refused to quash the proceedings in two Criminal Complaint Cases filed by M/s Kalpana Industries under Section 138 r/w Section 141 NI Act against applicants' firm. Briefly put, the applicants [Sonali Verma and another] moved the HC for quashing of the summoning orders of June 2022 passed by the ACJM-I, Unnao. They argued that they were merely sleeping partners of M/s K.D. Overseas and had no role in issuing the cheques that were allegedly dishonored. It was their contention that they had executed a registered power of attorney in September 2017 authorizing Sahil Verma (husband of applicant no.1 and son of applicant no.2) to exclusively manage, operate and conduct all business and financial activities of the partnership firm. It was their arguments that they were not signatories to the cheques in question and they had no knowledge of the transactions as alleged in the complaint. It was also submitted that the complaints lacked specific averments showing how the applicant were in charge of and responsible for the conduct of the firm's business, which they claimed, was mandatory under Section 141 NI Act. It was strongly contended that mere designation as a partner, does not automatically attract criminal liability under Sections 138 and 141 of the Act, 1881 same as is the case with Companies, where criminal liability is extended to only that person who at the time of the offence, was in-charge of and was responsible for the conduct of the business of the company. On the other hand, counsel for opposite parties no.2 and 3 heavily relied on the recent Supreme Court judgment Dhanasingh Prabhu v. Chandrasekar 2025 LiveLaw (SC) 708 to argue that a partnership firm has no legal recognition in the absence of its partners and that the liability of partners' liability is joint and several, not vicarious. It was also argued that a partnership firm is the business of partners and one cannot proceed against only the firm without the partners being made liable, which is not the case with a company, which is a separate juristic entity, unlike a partnership firm, which has no legal recognition in the absence of its partners The State's counsel also supported this position as he submitted that the trial court had rightly issued summons after evaluating the evidence. High Court's observations and order Against the backdrop of these submissions, the Court undertook an extensive analysis of Dhanasingh Prabhu case and noted that in absence of partnership firm being named as an accused, if the partners of the partnership firm are proceeded against, they will be jointly and severally liable along with the partnership firm as well as inter se partners of the firm. "…there is underlying distinct between the partnership firm and the company and it is a body corporate, whereas the offence committed by the company is differently dealt with and Section 141 of the Act, 1881 is attracted and there is no concept of authorised liability of the partners as such. The liability is joint and severe", the Court further noted. The Court also referred to Section 25 of the Indian Partnership Act, 1932 which says that every partner is liable, jointly with all the other partners and also severally, for all acts of the firm done while he is a partner. Thus, Justice Singh concluded that the applicants, being admitted partners under the partnership deed of May 2016, could not avoid their liability. "…Sahil Verma has acted on the basis of Power of Attorney executed by the applicants and he has issued the cheque on behalf of the firm, therefore, the applicants are also liable can be prosecuted", the bench noted Consequently, finding no infirmity in the ACJM's application of mind, the Court dismissed the plea by observing thus:: "The trial court has rightly entertained the complaint and issued summons against the applicants. Therefore, no interference is required… Both the applications being devoid of merit are rejected". Thus, the applications under Section 482 CrPC were dismissed. The NI Act proceedings before the ACJM, Unnao will continue against all accused, including the sleeping partners.Case title - Sonali Verma And Another vs. State Of U.P. Thru. Its Addl. Chief Secy. Deptt. Of Home Lko. And 2 OthersCitation : Click Here To Read/Download Order

Partners Not Separate From Firm; Liability Is Joint & Several: Allahabad High Court Refuses To Quash NI Act Case Against 'Sleeping Partners'

Sparsh Upadhyay

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