Summary
A partnership firm's cheque for Rs. 10 lakh, signed by one partner, was dishonoured. The statutory notice and the complaint both averred that both partners were in charge of and responsible for the firm's day-to-day affairs, and that the cheque was issued with the knowledge and consent of the respondent, the other partner. She received the notice but did not reply. The Madras High Court quashed the proceedings against her, holding that merely repeating the words of Section 141 of the NI Act was not enough. The Supreme Court set aside the quashing order. The basic averment (Gunmala Sales) is sufficient to proceed, and a partner seeking quashing must produce unimpeachable, incontrovertible material showing no concern with the cheque. A bald plea of dissolution or non-involvement cannot be decided on a quashing petition. Her silence after receiving the notice also weighed against her.
Issues
- Whether averments that a partner was in charge of and responsible for the firm's day-to-day affairs and consented to the cheque's issue suffice to proceed against her under Section 141 of the Negotiable Instruments Act
- When the High Court may quash a Section 138 complaint against a director or partner under Section 482 CrPC despite basic averments
- What is the significance of the accused not replying to the statutory notice
Provisions considered
- Section 141(1) and (2) and Explanation, Negotiable Instruments Act, 1881A firm is a 'company' and a partner a 'director'. Every person in charge of and responsible for the business when any component of the offence occurred may be proceeded against, and the burden to prove lack of knowledge or due diligence lies on that person at trial. (¶¶ 23, 24, 25, 26, 27, 30, 31, 47)
- Section 138, Negotiable Instruments Act, 1881The offence is complete only on a concatenation of acts from drawing the cheque to non-payment after notice. The notice also gives the noticee a chance to state why they are not liable. (¶¶ 24, 29, 44)
- Section 482, Code of Criminal Procedure, 1973Quashing of a complaint containing the basic averments requires sterling, incontrovertible material showing that making the accused stand trial would be an abuse of process. The respondent produced none. (¶¶ 40, 41, 46, 47)
Held
- The complaint need not reproduce Section 141 verbatim and must be read as a whole without a hyper-technical approach. Where it contains the basic averment that the accused was in charge of and responsible for the conduct of the firm's business, process may issue (Monaben Ketanbhai Shah, Gunmala Sales, K.K. Ahuja). (¶¶ 32, 33, 37, 41, 42)
- Despite basic averments, a High Court may quash proceedings only on unimpeachable, incontrovertible evidence or totally acceptable circumstances showing that the director or partner could not have been concerned with the cheque. Examples are terminal illness or a resignation long before. A bald assertion of non-involvement or of the firm's earlier dissolution is insufficient and is a matter for trial. (¶¶ 39, 40, 41, 43, 46)
- The complainant need only know generally who was in charge of the firm. What role the partners actually played is within their special knowledge, and they bear the burden at trial to show they were not in charge at the relevant time. (¶ 47)
- A person served with a statutory notice should reply, setting out any material showing no role in the firm. Where a partner keeps silent after notice containing averments of vicarious liability, the complainant may reasonably proceed on those averments. (¶¶ 44, 45)
- Here the notice and complaint specifically averred the respondent's responsibility for day-to-day affairs and her knowledge of and consent to the cheque, and she produced no incontrovertible material. The High Court had no legal basis to quash. (¶¶ 19, 20, 43)
Result
Appeal allowed. The High Court's order quashing the Section 138 proceedings against the respondent was set aside; no order as to costs.