• Validity of cheque given by ex-partner

I lent money to a partnership where my wife was a partner. The loan amount was transferred from my personal bank account to the partnership's account. As security, I obtained a blank cheque from the firm. Due to a bank merger, the cheque became invalid. A replacement cheque was issued, but it was only signed by my wife.

My wife subsequently left the partnership, and the remaining partners are now refusing to repay the loan. Can I invoke Section 138 of the Negotiable Instruments Act against the remaining partners by depositing the replacement cheque signed solely by my wife?
Asked 5 months ago in Criminal Law
Religion: Hindu

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11 Answers

You can file but in that case your wife being the erstwhile partner will also have be sued .

Devajyoti Barman
Advocate, Kolkata
23310 Answers
521 Consultations

  1. for the purpose of Section 141 of the NI Act, a firm comes within the ambit of a company. vicarious liability can be fastened on the persons in charge of or responsible for conduct of the business of a firm.
  2. A person who signs the cheque or who has authority to sign the cheque on behalf of the company can prima facie be assumed to be in charge and responsible for the conduct of the company.
  3. The primary responsibility of the complainant is only to add specific averments in the complaint to make the accused vicariously liable. To place criminal liability, there is no legal requirement for the complainant to show that the accused partner of the firm was aware of each and every transaction.

Ajay Sethi
Advocate, Mumbai
97392 Answers
7871 Consultations

Your wife was a partner  in that company then hence she signed it in the capacity of the partner. 

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.

If the firm cannot pay, the creditors are likely to ask the individual partners to pay. Partners have joint liability for the firm's debts. This means that each partner is liable for the whole balance of the firm's debts. However, any payments made towards a firm's debt will reduce the balance owed by each partner.

Recently, the Supreme Court of India (“Supreme Court”) in S.P. Mani and Mohan Dairy v. Dr. Snehalatha Elangovan held that vicarious liability can be imposed on the partners of a firm when specific averments are made in the complaint as to the status of the partner qua the firm. The Supreme Court also clarified that a complaint filed under Sections 138 and 141 of the Negotiable Instruments Act, 1881 (“NI Act”) can be quashed if the accused produces unimpeachable and incontrovertible evidence to show that the person could not have been concerned with issuance of the dishonored cheque.

T Kalaiselvan
Advocate, Vellore
87594 Answers
2352 Consultations

If your wife has already left the partnership, how can she sign the cheque now on behalf of the firm? Moreover a cheque is valid only for 3 months. It does not make sense to present that cheque for payment now.

Swaminathan Neelakantan
Advocate, Coimbatore
2953 Answers
20 Consultations

Dear Client,

Since the replacement cheque was signed solely by your wife, the first legal issue is whether this cheque can bind the partnership firm. According to Section 18 of the Partnership Act, 1932, a partner can bind the firm by acts done in the course of the business of the firm. However, once your wife exited the partnership, her authority to bind the firm would generally cease. The cheque issued by a partner who has left the firm may not be enforceable against the firm unless the partnership deed or any subsequent agreement provides otherwise.

Under the Partnership Act,1932 all partners are jointly and severally liable for the acts of the firm. However, the liability of the partners is tied to acts done while they were partners as if the cheque is issued after your wife left the firm, and only her signature is on it, then the remaining partners may argue that they are not liable for the cheque. Check the partnership agreement to see if it provides for any specific remedies or liabilities of the partners after a partner leaves the firm. Given the complexities of using a cheque signed by a former partner, you might consider filing a civil suit for the recovery of the loan amount against the firm and the remaining partners. Should you require any further clarification please do not hesitate to contact us.

Anik Miu
Advocate, Bangalore
10345 Answers
121 Consultations

- As per law, every partner is jointly and severally liable for all acts of the firm done while he is a partner.

- Further, the retiring partner continues to be liable to the third parties for any acts of the firm for the period when he was a partner at the firm. 

- Hence, all the surviving partners are under obligation to repay the loan including your wife even she retired 

- You can file a complaint under section 138 N.I.Act , if the said cheques limitation has nor expired , and further you can also file a recovery suit before the court as well. 

Mohammed Shahzad
Advocate, Delhi
14726 Answers
224 Consultations

Cheque is valid as issued by wife when she was a partner of the firm 

 

2) when blank cheque is issued it authorises payee to  fill in details .The Supreme Court has reiterated that a blank cheque leaf, which has been voluntarily signed by the drawer and handed over to the payee towards some payment, will carry the presumption that it was issued in discharge of a legally enforceable debt as per Section 139 of the Negotiable Instruments Act

 

3) she is liable for debts when she was a partner 

 

4) file suit against firm to recover dues 

 

5) apply for compounding of offence 

Ajay Sethi
Advocate, Mumbai
97392 Answers
7871 Consultations

1. The validity of a cheque is three months from its date mentioned in the cheque. if she has retired long ago i.e., more than three months and the case has been filed post retirement i.e., beyond three months then she may disclaim the liability. However  the retiring partner continues to be liable to the third parties for any acts of the firm for the period when he was a partner at the firm

2. If a signed blank cheque is voluntarily presented to a payee, towards some payment, the payee may fill up the amount and other particulars. This in itself would not invalidate the cheque. The onus would still be on the accused to prove that the cheque was not in discharge of a debt or liability by adducing evidence.

3. No, the NI Act will not apply in that situation

4. A partner who retires from a firm does not thereby cease to be liable for partnership debts or obligations incurred before his retirement.

5. They can sue the partnership firm to get their grievances redressed and not particularly against any partner.

6. It depends on what their case or grievances against your wife 

T Kalaiselvan
Advocate, Vellore
87594 Answers
2352 Consultations

Dear Client,

  1. A cheque signed by your wife before her retirement from the partnership may still be valid, provided it was issued when she was an active partner and authorized to sign on behalf of the firm. However, if she is no longer a partner at the time of presenting the cheque, her authority to bind the firm with that cheque may be questioned. This could affect the enforceability of the cheque against the firm or the remaining partners.
  2. The fact that the cheque was initially blank and later filled in does not inherently affect its validity. However, if there is any dispute about the amount filled in or other details, it could lead to challenges regarding the cheque's enforceability.
  3. If the bank returns the cheque because your wife is no longer a signing authority, Section 138 of the NI Act could still apply. The reason for dishonour may it be due to insufficient funds or any other reason, such as the drawer not being authorized, can trigger action under Section 138. However, the defence may argue that the cheque was issued without authority if it was presented after her retirement.
  4. If your wife's account was settled and her retirement deed specifies that she is no longer liable for debts incurred after her retirement, she might not be liable for the firm's debts. However, she may still be liable for obligations or debts incurred before her retirement, depending on the terms of the retirement agreement and how the cheque was issued.
  5. Your parents can choose to sue the partnership and the surviving partners while excluding your wife. By this, the remaining partners are generally liable for the debts of the firm incurred while they were partners, but excluding your wife from the lawsuit would mean that she is not being held accountable for the cheque or the debt associated with it.
  6. If your parents decide to sue your wife, she could potentially argue that She was no longer a partner when the cheque was presented, her account was settled at the time of her retirement, and she had no further obligations towards the firm’s debts or the cheque was not presented during the time she was an active partner, questioning its validity as binding on her, and therefore, she should not be liable.

Should you require any further clarification, please do not hesitate to contact us.

Anik Miu
Advocate, Bangalore
10345 Answers
121 Consultations

1. and 2. No, not valid. At the date of presenting the cheque, she ceased to be a partner. Moreover, other partners would have notified the bank about her retirement by then.

3. No, as the cheque is returned for a valid reason.

4. Not as a partner, but if she has signed any personal guarantee, she is bound by it.

5. No, she is a necessary party who cannot be left out.

6. Whatever the dues of the firm are to the outsiders are her liabilities as a partner.

 

Swaminathan Neelakantan
Advocate, Coimbatore
2953 Answers
20 Consultations

1. Yes, if the cheque is not dated 

2. Yes, if the cheque is signed and not filled , then also it is valid. 

3. Yes,

4. No

5. Yes

Mohammed Shahzad
Advocate, Delhi
14726 Answers
224 Consultations

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