Dishonour of Cheque - All partners of the firm liable, cannot escape liability by execution of a power of attorney

Allahabad High Court Upholds Criminal Liability of Partners in Dishonored Cheque Case Partners Cannot Evade Responsibility for Firm's Actions Despite Power of Attorney, Rules Court

In a significant ruling, the Allahabad High Court dismissed applications seeking to quash proceedings against partners of a firm under Section 138 of the Negotiable Instruments Act, 1881, for dishonored cheques. The court ruled that partners are jointly and severally liable for the acts of the partnership firm, including the issuance of dishonored cheques, regardless of any power of attorney executed to delegate management responsibilities.

The case, titled Sonali Verma v. State of U.P., involved criminal complaints against M/s K.D. Overseas and its partners, including Sonali Verma, for cheques issued on behalf of the firm that were subsequently dishonored. The applicants contended that they were mere sleeping partners and had delegated all operational duties to Sahil Verma via a power of attorney. However, the High Court, presided over by Justice Brij Raj Singh, upheld the trial court's summoning orders, emphasizing the joint and several liability inherent in partnership structures.

The judgment underscored that the liability of partners is not merely vicarious but joint and several, as a partnership firm is not a distinct legal entity separate from its partners. The court cited the Supreme Court's interpretation in Dhanasingh Prabhu v. Chandrasekar, reiterating that partners cannot shirk liability for the firm's actions.

The ruling reaffirms the principle that while a power of attorney can delegate managerial tasks, it does not absolve partners of their legal responsibilities. The court found no merit in the applicants' claims of non-participation in the firm's affairs, given the statutory provisions governing partnerships.

Bottom Line:

Liability of partners in a partnership firm under Section 138 of the Negotiable Instruments Act, 1881 - Partners are jointly and severally liable for the acts of the firm, and they cannot escape liability merely due to execution of a power of attorney authorizing another person to manage the firm's affairs.

Statutory provision(s): Section 138 of the Negotiable Instruments Act, 1881, Section 141 of the Negotiable Instruments Act, 1881, Section 482 of the Criminal Procedure Code, Section 25 of the Indian Partnership Act, 1932, Section 528 of Bharatiya Nagarik Suraksha Sanhita, 2023.

Sonali Verma v. State of U.P., (Allahabad)(Lucknow) : Law Finder Doc Id # 2810975