The Allahabad High Court (Lucknow Bench) held that the sleeping partners (applicants) cannot escape from their liability under the Negotiable Instruments Act, 1881 (NI Act) by clarifying that a partnership firm is not really a legal entity separate and distinct and it can have a legal persona only when it is considered along with its partners.

Referring to Section 25 of the Indian Partnership Act, 1932 which declares 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, the Court emphasised that the trial court has rightly entertained the complaint and issued summons against the applicants, as sleeping partners.

A Single Judge Bench of Justice Brij Raj Singh observed that a Power of Attorney holder who was appointed by the sleeping partners of a partnership firm to look into the affairs of the firm, and who has acted in issuing cheques on behalf of the firm, based on the said Power of Attorney, will render those sleeping partners also liable for prosecution under Sections 138 read with Section 141 of the NI Act.

The Bench explained that director is a separate persona in relation to a company, whereas in the case of a partnership firm, the partner is not really a distinct legal persona. This is because a partnership firm is not really a legal entity separate and distinct as a company is from its directors but can have a legal persona only when the partnership firm is considered along with its partners.

Reference was made to the decision of the Apex Court in the case of S.M.S. Pharmaceuticals Ltd. vs Neeta Bhalla [(2005) 8 SCC 89], where it was held that “merely being described as a director in a company is not sufficient to satisfy the requirement of Section 141 of the Act, 1881. Even a non-director can be liable under Section 141. The criminal liability has been fastened on those who at the time of the commission of the offence, were in-charge of and were responsible to the firm for the conduct of the business of the firm”.

Briefly, the applicant entered a partnership deed for carrying on business under the name and style of “M/s K.D. Overseas” at Haryana, with the object to engage in the business of growing, cultivating, producing, manufacturing, and trading of various agricultural products. The applicants are sleeping partners of the partnership firm, having no role whatsoever in its management of day-to-day affairs. Later, the applicants executed a registered power of attorney, thereby authorising the person to take charge over the management of the firm’s affairs.

In the meantime, a criminal complaint was filed by the opposite parties under Section 138 read with Section 141 of the NI Act, and the applicants were arrayed as accused, along with the power of attorney holder who had issued cheques in question amounting to Rs. 45 lacs, in favour of the opposite party.

Case Relied On:

Dhanasingh Prabhu Vs. Chandrasekar [(2025) SCC OnLine SC 1419]

Appearances:

Advocate Abhineet Jaiswal, for the Applicant

Advocates Abhinav Kumar Mathur, Avdhesh Kumar Pandey, Ram Kumar Verma, for the Opposite Party