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2007 DIGILAW 1258 (AP)

A. v. Ramanaiah VS M. Shekhar

2007-12-31

BILAL NAZKI, G.V.SEETHAPATHY, NOOTY RAMAMOHANA RAO

body2007
JUDGMENT ( Nooty Ramamohana Rao, J.) As the Division Bench has expressed its inability to agree with the view taken by this Court in Amit Desai v. M/s. Shine Enterprises1, this matter has been referred to the Full Bench, to decide the question as to "Whether bar contained under Section 69(2) of the Partnership Act for institution of a suit to enforce a right arising from a contract by an unregistered firm can be extended to criminal proceedings launched for the offence under Section 138 of the Negotiable Instruments Act or not." 2. This controversy has been raised when a complaint lodged by an unregistered firm, has been entertained under Section 138 of the Negotiable Instruments Act, 1881 (for purposes of brevity, henceforth referred to as the Act"). The accused had raised an objection about its maintainability on the premise that the complainant being an unregistered partnership firm, the bar contained under Section 69 of Indian Partnership Act, 1932 is attracted. Section 69 of the Indian Partnership Act, 1932 is attracted. Section 69 of the Indian Partnership Act, 1932, to the extent relevant for the present enquiry, reads as under: Section 69: Effect of non-registration - (1) No suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any Court by or on behalf of any persons suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm. (2) No suit to enforce a right arising from a contract shall be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm. (2) No suit to enforce a right arising from a contract shall be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm. (3) The provisions of sub-section (1) and (2) shall apply also to a claim of set-oft or other proceeding to enforce a right arising from a contract, but shall not affect- (a) The enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm, or any right or power to realize the property of a dissolved firm, or (b) the power of an official assignee, receiver or Court under the Presidency-towns Insolvency Act, 1909 (3 of 1909) or the Provincial Insolvency Act, 1920 (5 of 1920), to realize the property of an insolvent partner. (4) This section shall not apply- (a) to firms or to partners in firms which have no place of business in the territories to which this Act extends, or whose places or business in the said territories are situated in areas to which, by notification under Section 56, this Chapter does not apply, or (b) to any suit or claim of set-off not exceeding one hundred rupees in value which, in the Presidency-towns, is not of a kind specified in Section 19 of the Presidency Small Cause Courts Act, 1882 (5 of 1882) or outside the Presidency-towns, is not of a kind specified in the Second Schedule to the Provincial Small Cause Courts Act, 1887 (9 of 1887), or to any proceeding in execution or other proceeding incidental to or arising from any such suit or claim. 3. Sub-Section (1) of Section 69 creates a bar from instituting a suit by or on behalf of any person suing as a partner in a firm against the firm or any other partner in a firm for enforcing any right arising from a contract or for purposes of enforcing a right conferred by and under the Partnership Act itself. 3. Sub-Section (1) of Section 69 creates a bar from instituting a suit by or on behalf of any person suing as a partner in a firm against the firm or any other partner in a firm for enforcing any right arising from a contract or for purposes of enforcing a right conferred by and under the Partnership Act itself. Sub-Section (2) creates a similar bar for instituting a suit by or on behalf of firm against any third-party, unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm, when such a suit is instituted to enforce a right arising from a contract. Sub-Section (3) merely clarified that the bar contained under sub-sections (1) and (2) shall also apply to a claim of set off or other proceeding brought out to enforce a right arising from a contract. 4. The purpose behind Section 69 of the Partnership Act was obviously intended to impose a disability on an unregistered firm or its partners from enforcing rights arising out of contracts entered into by the firm with third parties in the course of its business. Once the registration of firm has been effected, the statement recorded in the Register regarding the constitution of the firm will offer conclusive proof of facts contained therein thus preventing the partners from denying the obligations arising out of the business transactions carried on by the firm. This would also offer a reasonable strong protection to the persons dealing with the firms against false denials of the partnership and evasion of liability of the substantial members of the partnership firm at a later point of time. 5. Bearing these aspects in mind, it would be appropriate at this stage to refer to what the Supreme Court has pointed out in its judgments in M/s. Raptakos Brett and Co. Ltd. V. Ganesh Property, Haldiram Bhuji wala v. Anand Kumar Deepak Kumar and Kamal Pushp Enterprises It has been held in M/s. Raptakos Brett and Co. Ltd. v. Ganesh Property (2 supra) as under: "A mere look at the aforesaid provision . shows that the suit filed by an unregistered firm against a third party for enforcement of any right 'arising from a contract with such a third party would be barred. ... . ..." . 6. Ltd. v. Ganesh Property (2 supra) as under: "A mere look at the aforesaid provision . shows that the suit filed by an unregistered firm against a third party for enforcement of any right 'arising from a contract with such a third party would be barred. ... . ..." . 6. In Halidiram Bhujiwala v. Anand Kumar Deepak Kumar(3 supra) it has been set out as under: "The further and additional but equally important aspect which has to be made clear is that the contract by the unregistered firm referred to in Section 69(2) must not only be one entered into by the firm with the third party defendant but must also be one entered into by the plaintiff firm in the course of the business dealings of the plaintiff's firm with such third party defendant. It was also be seen that the present defendants who are sued by the plaintiff firm are third parties to the 151 plaintiff firm Section 2(d) of the Act defines 'third parties' as persons who are not partners of the firm. The defendants in the present case are also third parties to the contract of dissolution dated 16-11-1974. Their mother, Kamla Devi was no doubt a party to the contract of dissolution. The defendants are only claiming a right said to have accused to their mother under the said contract dated 16-11-1974 and then to the defendants. In fact, the said contract of dissolution is not a contract to which even the present 1 51 plaintiff firm or its partners or the 2nd plaintiff were parties. Their father Moolchand was a party and his right to the trademark devolved in plaintiffs. The real crux of the -question is that the Legislature when it used the words "arising out of a contract" in Section 69(2), it is referring to a contract entered into in course of business transactions by the unregistered plaintiff firm with its customers defendants and the idea is to protect those in commerce who deal with such a partnership firm in business. Such third parties who deals with the partners ought to be enabled to know what the names of the partners of the firm are before they deal with them in business. Further Section 69(2) is not attracted to any and every contract referred to in the plaint as the source of title to an asset owned by the firm. Such third parties who deals with the partners ought to be enabled to know what the names of the partners of the firm are before they deal with them in business. Further Section 69(2) is not attracted to any and every contract referred to in the plaint as the source of title to an asset owned by the firm. If the plaint referred to such a contract it could only be as a historical fact. For example, if the plaint filed by the unregistered firm refers to the source of the firm's title to a motor car and states that the plaintiff has purchased and received a Motor Car from a foreign buyer under a contract and that the defendant has unauthorisedly removed it from the plaintiff firm's possession, - it is clear that the relief for possession against defendant in the suit does not arise from any contract with defendant entered into in the course of plaintiff firms' business with defendant but is based on the alleged unauthorized removal of the vehicle from the plaintiff firm's custody by the defendant. In such a situation, the fact that the unregistered firm has purchased the vehicle from somebody else under a contract has absolutely no bearing on the right of the firm to sue the defendant for possession of the vehicle. Such a suit would be maintainable and Section 69(2) would not be a bar, even if the firm is unregistered on the date of suit. The position in the present case is not different. In fact, the act has not prescribed that the transactions or contracts entered into by an firm with a third party are bad in law if the firm is an unregistered firm. On the other hand, if the firm is not registered on date of suit and the suit is to in force a right arising out of a contract with the third party defendant, in the course of its business, then it will be open to the plaintiff to seek withdrawal of the plaint with leave and file a fresh suit after registration of the firm subject of course to the law of limitation and subject to the provisions of the Limitation Act. This is so even if the suit is dismissed for a formal defect. This is so even if the suit is dismissed for a formal defect. Section 14 of the Limitation Act will be available inasmuch as the suit has failed because the defect of non-registration falls within the words "other cause of like nature" in Section 14 of the Limitation Act, 1963. For all the reasons given above, it is clear that the suit is based on infringement of statutory rights under the Trade Marks Act. It is also based upon the common law principles of tort applicable to passing off actions. The suit is not for enforcement of any right arising out of a contract entered into by or on behalf of the unregistered firm with third parties in the course of the firm's business transactions. The suit is therefore not barred by Section 69(2)." 7. Once again, the Supreme Court has considered the question in Kamal Pushp Enterprises v. D.R. Construction Company (4 supra) as under: "The prohibition contained in Section 69 is in respect of instituting a proceeding to enforce a right arising from a contract in any Court by an unregistered firm, and it had no application to the proceedings before an Arbitrator and that too when the reference to the Arbitrator was at the instance of the appellant itself. It the said bar engrafted in Section 69 is absolute in its terms and is destructive of any and every right arising under the contract itself and not confined merely to enforcement of a right arising from a contract by an unregistered firm by instituting a suit or other proceedings in Court only, it would become a jurisdictional issue in respect of the Arbitrator's power, authority and competency itself, undermining thereby the legal efficacy of the very award, and consequently furnish a ground by itself to challenge the award when it is sought to be made a rule of Court. The case before us cannot be said to be one such and the learned Counsel for the appellant though was fully conscious of this fact, yet tried to asset that it is open to the appellant to take up the objection based upon Section 69 of the Partnership Act, at any stage-even during the post award proceedings to enforce the award passed. The Award in this case cannot either rightly or legitimately said to be vitiated on account of the prohibition contained in Section 69 of the Partnership Act, 1932 since the same has no application to proceedings before an Arbitrator. At the stage of enforcement of the award by passing a decree in terms thereof what is enforced is the award itself which crystallized the rights of parties under the Indian Contract Act and the general law to be paid for the work executed and not any right arising only from the objectionable contract. It is useful in this connection to refer to the decision of this Court in Satish Kumar and others v. Surinder Kumar and others ( AIR 1970 SC 833 ), wherein it has been stated in unmistakable terms that an Award is not a mere waste paper but does create rights and has some legal effect besides being final and binding on the parties. It has also been held that the award is, in fact, a final adjudication of a Court of the parties' own choice and until impeached upon sufficient grounds in an appropriate proceedings, an award which is on the face of it regular, is conclusive upon the merits of the controversy submitted for arbitration. Consequently, the post award proceedings cannot be considered by any means, to be a suit or other proceedings to enforce any rights arising under a contract. All the more so when, as in this case; at all stages the respondent was only on the defence and has not itself instituted any proceedings to enforce any rights of the nature prohibited under Section 69 of the Partnership Act, before any Court as such. We see no infirmity or error whatsoever in the decision of the Courts below to call for our interference in this appeal. The appeal fails and shall stand dismissed." 8. Therefore, the principal that emerges is that, the bar contained under Section 69 of the Partnership Act is intended to prevent an unregistered partnership firm or Company one claiming to be a partner of such a firm from seeking to enforce a right arising out of a contract against a third party, and that it is not intended to create any such bar for the purposes of enforcing rights arising out of statutes or for invoking the protection available under any other statute. 9. 9. In this context, if we examine the provisions contained under Sections 138 and 141 of the Act, what has been introduced by way of an amendment of the statute, is to recognize the act of dishonour of a cheque as an offence committed by a person who draws sucha cheque. Therefore, the act of dishonour of a cheque has come to be recognized as an "offence" in our country w.e.f. 01-04-1989 and the offender is sought to be punished appropriately with imprisonment. 10. The explanation under Section 138 of the Act clarified that the expression "debt or other liability" as meaning, a legally enforceable debt or other liability. "Offences committed by the Companies" which has been separately dealt with under Section 141 of the Act, makes it clear that every person who, at the time the offence was committed, was incharge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. In the explanation furnished thereunder, the expression 'Company' has been defined as a body corporate including a firm or other association of individuals. 11. Reading Sections 138 and 141 of the Act together it becomes obvious that whoever draws a cheque which has been dishonoured, irrespective of whether the cheque has been drawn by an individual or a company or a firm or an association of individuals, and if such a cheque has been dishonoured for reasons such as insufficiency of funds or that it exceeded the arrangement made by the drawer of the cheque with banker, an offence is said to have been committed by the drawer of such a cheque attracting the punishment prescribed therein. If a firm commits such an offence, it also becomes liable to be punished along with all such men who are responsible for carrying out its business activity. Similarly, if a cheque has been drawn in favour of a firm, it can also seek initiation of the proceedings for the offence committed under Section 138 of the Act. 12. If a firm commits such an offence, it also becomes liable to be punished along with all such men who are responsible for carrying out its business activity. Similarly, if a cheque has been drawn in favour of a firm, it can also seek initiation of the proceedings for the offence committed under Section 138 of the Act. 12. While dealing with the question as to who can set the criminal law in motion for prosecuting the offence committed, it has been pointed out by the Supreme Court in Vishwa Mitter v. O. P. Podder that anyone can set the criminal law in motion. While dealing with the question as to whether a body corporate, can set the criminal law in motion, the Supreme Court has pointed out in Associated Cement Co. Ltd. v. Keshavanand that the body corporate becomes the de jure complainant. 13. In BSI Ltd. V. Gift Holdings Pvt. Ltd.? while dealing with the question as to whether the ban against the maintainability of a suit for recovery of money would encompass even prosecution proceedings also, the Supreme Court has answered the same in the following words: "It was next contended that the ban against maintainability of a suit for the recovery of money would encompass prosecution proceedings also. To support the said contention reliance was sought to be made on the following meaning of the word "suit" as given in Bouvier's Law Dictionary. "Suit is a generic term of comprehensive signification, and applies to any proceeding in a court of justice in which the plaintiff pursues, in such court, the remedy which the law affords him for the redress of any injury or the recovery of a right........ .In its most extended sense, the word suit includes not only a civil action, but also a criminal prosecution, as, indictment, information and a conviction by a Magistrate." Learned Counsel invited our attention to the maxim contemporanea exposition set optima et fortissimo in lege (contemporaneous exposition is the best and strongest in for the purpose of stretching the scope of the word "suit" to envelop criminal prosecution as well. Our attention has also been invited to the observation of a two-Judge Bench of this Court in Maharashtra Tubes Ltd. v. State Industrial and Investment Corpn. Of Maharashtra Ltd. ( (1993) 2 SCC 144 ). Our attention has also been invited to the observation of a two-Judge Bench of this Court in Maharashtra Tubes Ltd. v. State Industrial and Investment Corpn. Of Maharashtra Ltd. ( (1993) 2 SCC 144 ). While considering the purpose and objects of suspension of proceedings mentioned in Section 22(1) of SICA, therein it has been held that the expression "proceedings" in the subsection must be widely construed. This is what the Bench has observed: "The legislature has advisedly used an omnibus expression 'the like' as it could not have conceived of all possible coercive measures that may be taken against a sick undertaking." The said contention is also devoid of merits. The word "suit" envisaged in Section 2(1) cannot be stretched to criminal prosecutions. The suit mentioned therein is restricted to "recovery of money or for enforcement of any security against the industrial company or of any guarantee in respect of any loans of advance granted to the industrial company." As the suit is clearly delineated in the provision itself, the context would not admit of any other stretching process. A criminal prosecution is neither for recovery of money nor for enforcement of any security etc. Section 138 of the NI Act is a penal provision the commission of which offence entails a conviction and sentence on proof of the guilt in duly conducted criminal proceedings. Once the offence under Section 138 is completed the prosecution proceedings can be initiated not for recovery of the amount covered by the cheque but for bringing the offender to penal liability." 14. From a careful analysis of what has been set out supra, it emerges that the expression 'suit' envisaged under Section 69 of the Partnership Act cannot be stretched for securing immunity from criminal prosecutions. As was noticed supra the bar under Section 69 of the Partnership Act is liable to be confined only to enforcement of contractual obligations, but not to any other proceeding initiated for securing or enforcing statutory protections or obligations. It must necessarily follow that the bar contained under Section 69 of the Partnership Act does not encompass immunity from penal liability and the criminal proceedings for the offence committed under Section 138 of the Act. It must necessarily follow that the bar contained under Section 69 of the Partnership Act does not encompass immunity from penal liability and the criminal proceedings for the offence committed under Section 138 of the Act. The expression "debt or other liability" contained in the explanation of Section 138 of the Act, as meaning a legally enforceable debt or liability, does not refer even remotely to the penal liabilities. Penal liability is completely distinct from measures taken for enforcing a debt or any other liability. Penal consequences' follow only from offences, and unless a particular act is recognized as an offence, the penal consequences could not have flow there from. 15. Since the expression 'offence' has not been defined in the Act, the same has to be understood, in the same manner as was defined under Section 3(38) of the General Clauses Act. The expression 'offence' was defined as under: Offence: Offence shall mean any act or omission made punishable by any law for the time being in force. 16. "Offence" is conventionally understood as an act committed against law. Therefore, offences are generally conceived as equivalent to crimes. In it's legal signification an offence is the transgression of a law; or a breach of laws. Offence is one which is naturally evil as adjudged by the sense of a civilized community. Offence is, therefore, construed as an act which is wrong only because it is made so by a statute. Hence, cognizance is taken of an offence and not, importantly, of the offender. 17. There is an essential distinction between a offence and the prosecution of such an offence. The former forms part of substantive law while the later is purely procedural. An offence is an aggregate of acts or omissions committed with criminal intent punishable by law while prosecution signifies the procedure for obtaining an adjudication of Court in respect of such acts or omissions. 18. Therefore, offences can be committed by anyone, be it an individual or a body corporate, whether incorporated or not. One to be characterized as an offender one does not need incorporation. Therefore, the Negotiable Instruments Act has not intended to confer any immunity from the procedure of prosecution, upon an unincorporated body. Hence, the protection contemplated under Section 69 of the Partnership Act does not extend to the prosecution either lunched by or against an unregistered partnership firm. 19. One to be characterized as an offender one does not need incorporation. Therefore, the Negotiable Instruments Act has not intended to confer any immunity from the procedure of prosecution, upon an unincorporated body. Hence, the protection contemplated under Section 69 of the Partnership Act does not extend to the prosecution either lunched by or against an unregistered partnership firm. 19. In this context, this issue is also liable to be examined from another angle. It is relevant to notice the expression 'cheque' has been defined in Section 6 of the Act as a bill of exchange drawn on a specified banker and expressed to be payable on demand. "Bill of Exchange" has been defined in Section 5 of the Act as an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument. Therefore, a cheque being bill of exchange is an instrument, which entitles for payment and corresponding receipt of certain amount of money. 20. It will also be worthy to notice the expressions 'Holder' and "Holder in due course" and "Negotiable Instrument" as set out in Sections 8, 9 and 13 of the Act as herein below: Holder: The "holder" of a promissory note, bill of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. Where the note, bill or cheque is 16st or destroyed, its holder is the person so entitled at the time of such loss or destruction. Holder in due course: "Holder in due course" means any person who for consideration became the possessor of a promissory note, bill of exchange of cheque if payable to bearer, or the payee or indorse therefore, if (payable t6 order), before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title. Negotiable instrument:- (1) A "negotiable instrument" means a promissory note, bill of exchange or cheque payable either to order or to bearer. Negotiable instrument:- (1) A "negotiable instrument" means a promissory note, bill of exchange or cheque payable either to order or to bearer. (2) A negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one or some of several payees. 21. The expression 'Negotiation' and 'Indorsement' has been defined under Section 14 and Section 15 of the Act as herein below: Negotiation: When a Promissory Note, Bill of Exchange or Cheque is transferred to any person, so as to constitute that person the holder thereof, the instrument is said to be negotiated. Indorsement: When the maker or holder of a negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation, on the back of face thereof or on a slip of paper annexed thereto, or so signs for some purpose a stamped paper intended to be completed as a negotiable instrument, he is said to indorse the same, and is called the "indorser". 22. If a cheque has been drawn in favour of an unregistered partnership firm, and it being a negotiable instrument, can be indorsed in favour of any third party. Therefore, by a mere endorsement, an unregistered partnership firm can either choose any individual or a registered firm which does not invite the bar envisaged in Section 69 of the Partnership Act, for purposes of initiating or avoiding criminal prosecution. 23. Therefore, the statute maker would have never intended that by a mere indorsement, a prosecution could be lunched, which could not have been otherwise launched, if the bar contained under Section 69 of the Partnership Act, is to be stretched to cover the offences under Section 138 of the Act. We are, therefore, of the view that the Division Bench has not correctly appreciated the distinction between the right of enforcing contractual obligations arising out of business transactions carried out by an unregistered partnership firm, as contemplated and covered under Section 69 of the Partnership Act, in contrast to the penal action rendering dishonour of cheque as an offence contained under Section 138 of the Act. Therefore, we hold that the Division Bench in Amit Desai v. M/s. Shine Enterprises(1 supr) has not laid down correct law. 24. Therefore, we hold that the Division Bench in Amit Desai v. M/s. Shine Enterprises(1 supr) has not laid down correct law. 24. The reference is, accordingly, answered holding that the bar contained under Section 69 of the Partnership Act would not get attracted for initiating action by or against an unregistered partnership firm for the offence committed under Section 138 of the Act. The matter be listed before the appropriate Bench.