Section 138 NI Act | Partner Liability For Firm's Cheques : Kerala High Court

The Kerala High Court's recent judgment in Subair A.V. v. M/s Koyenco Mobikes reaffirms the stringent liability framework under Section 138 of the Negotiable Instruments Act, particularly for partners in firms issuing dishonoured cheques. The decision underscores that partners cannot evade criminal liability by claiming passive roles when documentary evidence establishes their active involvement in business transactions.

Background & Facts

The Dispute

The case originated from a commercial transaction between M/s Koyenco Mobikes (complainant) and M/s Alika Veedu (accused firm). The accused firm allegedly incurred a liability of ₹30,99,247.25, later adjusted to ₹23,99,247.25 after partial payment. To discharge this liability, the firm issued three cheques (Exts.P7-P9) signed by its partners, including the petitioner Subair A.V. When these cheques were dishonoured for "exceeding arrangements," the complainant initiated criminal proceedings under Section 138 NI Act.

Procedural History

The case progressed through multiple judicial forums:

• 2004: Complaint filed before Judicial First Class Magistrate-IV, Kozhikode (CC No.249/2004)
• 2007: Trial Court convicted all three accused, imposing fines and imprisonment
• 2008: Sessions Court partly allowed the petitioner's appeal (Crl.A No.202/2007), reducing imprisonment to fine but upholding conviction
• 2009: Petitioner filed criminal revision petition challenging conviction

The Parties' Positions

The petitioner, arraigned as the third accused, contended:

• He was a "silent partner" with no role in the firm's business conduct
• The cheques did not represent valid liabilities due to disputed adjustments

The complainant relied on:

• Ext.P6 agreement, where the petitioner acknowledged liability and undertook to ensure cheque clearance
• Testimony of PW1 (complainant's representative) confirming the petitioner's active role in transactions

The Legal Issue

The central question was whether a partner can avoid liability under Section 138 NI Act by:

1. Claiming lack of involvement in the firm's business affairs, and
2. Disputing the validity of the cheque amount based on oral testimony contradicting documentary evidence.

Arguments Presented

For the Petitioner

The petitioner's counsel advanced two primary arguments:

1. Lack of Active Role: The petitioner was merely a "silent partner" with no involvement in the transactions leading to the cheque issuance. Reliance was placed on the absence of specific evidence proving his day-to-day management role.
2. Invalid Liability: The cheques exceeded the actual liability since PW1 denied the adjustment of ₹7,00,000 during cross-examination. The counsel contended that Exts.P7-P9 could not be valid instruments for prosecution if the underlying debt was disputed.

For the Respondent

The complainant's counsel countered with:

1. Documentary Evidence: Ext.P6 agreement explicitly named the petitioner as a signatory who undertook to ensure cheque clearance. The court noted that the petitioner's active role was evident from the agreement's terms.
2. Oral Testimony Immaterial: The denial of the ₹7,00,000 adjustment by PW1 was inconsequential since the cheque amounts were less than the admitted liability. The court held that minor discrepancies in oral testimony could not invalidate cheques issued pursuant to a written agreement.

The Court's Analysis

The High Court conducted a meticulous examination of the evidence and legal principles:

1. Partner Liability Under Section 138 NI Act The court rejected the petitioner's claim of being a "silent partner," holding that Section 138 NI Act imposes vicarious liability on partners for cheques issued by their firm. The judgment emphasized that:

"It is apparent from Ext.P6 and the evidence adduced by PW1 that Exts.P7 to P9 cheques were executed and issued towards the discharge of the liability of the amount mentioned in the aforesaid cheques in the business transaction of the first accused firm in which the petitioner herein was also in-charge of the conduct of affairs."

The court relied on the principle of constructive liability, where partners cannot escape criminal consequences by distancing themselves from the firm's transactions. The Ext.P6 agreement was pivotal, as it demonstrated the petitioner's active participation in acknowledging the debt and issuing the cheques.

1. Evidentiary Standards The court clarified the hierarchy of evidence in cheque dishonour cases:

• Documentary Evidence Prevails: The Ext.P6 agreement and cheques (Exts.P7-P9) were accorded greater weight than PW1's oral testimony during cross-examination. The court held that minor inconsistencies in oral evidence could not override the clear terms of a written agreement.
• Cheque Amount Validity: The petitioner's argument that the cheques did not represent valid liabilities was rejected. The court observed that even if the cheque amount was less than the actual liability, it could not invalidate the prosecution. The judgment noted:

"If the amount mentioned in the dishonoured cheque is found to be less than the actual liability, as borne out from the evidence of the complainant, it could, at the most, be presumed that the complainant had written-off or abandoned the amount in deficit."

1. Revisional Jurisdiction The court reiterated the limited scope of revisional jurisdiction under Section 397 Cr.P.C. Citing the Supreme Court's decision in Sanjabij Tari v. Kishore S Borcar, the judgment emphasized that High Courts should not interfere with concurrent findings of fact unless perversity is evident. The court held:

"The law is well settled that High Courts should be loath in interfering with the concurrent findings of the Trial Court and Appellate Court, in the absence of perversity looming large from the evidence on record."

The Verdict

The Kerala High Court dismissed the criminal revision petition, upholding the petitioner's conviction under Section 138 NI Act. The court confirmed:

1. The petitioner's liability as a partner for the firm's dishonoured cheques
2. The validity of the cheques despite minor discrepancies in oral testimony
3. The limited scope of revisional jurisdiction in overturning concurrent findings

What This Means For Similar Cases

Partners Cannot Evade Liability By Claiming Passive Roles

The judgment reinforces that partners in a firm cannot avoid criminal liability under Section 138 NI Act by merely asserting they were "silent partners." Practitioners must note:

• Documentary Evidence is Key: Agreements, cheques, and other documents proving a partner's involvement in transactions will be decisive.
• Active Role Presumption: Courts will presume active participation if a partner signs agreements or cheques on behalf of the firm.
• Defence Strategy: Partners seeking to avoid liability must provide clear and cogent evidence of their lack of involvement, beyond mere assertions.

Oral Testimony Cannot Override Documentary Evidence

The court's approach to evidentiary standards provides crucial guidance:

• Written Agreements Trump Oral Discrepancies: Minor inconsistencies in witness testimony will not invalidate cheques issued pursuant to a written agreement.
• Cheque Amount Validity: Even if the cheque amount is less than the actual liability, it does not invalidate the prosecution. The focus remains on whether the cheque was issued towards a legally enforceable debt.
• Burden of Proof: The accused must prove that the cheque was issued for an invalid or non-existent debt, not merely that the amount was disputed.

Limits of Revisional Jurisdiction

The judgment serves as a reminder of the constraints on High Courts' revisional powers:

• Concurrent Findings Are Binding: Unless perversity is evident, High Courts will not re-examine factual findings upheld by lower courts.
• Strategic Litigation: Practitioners should carefully assess the merits of revision petitions, particularly in cases with concurrent convictions. Grounds for revision must focus on legal errors rather than factual disputes.
• Precedential Value: The reliance on Sanjabij Tari v. Kishore S Borcar underscores the importance of citing binding precedents to challenge concurrent findings.