The Supreme Court held that a partner’s retirement from a registered firm under the Indian Partnership Act, 1932, requires strict compliance with Section 72—including public notice publication and Registrar of Firms updates—to absolve liability under Section 138 of the Negotiable Instruments Act, 1881. Non-compliance renders retirement legally ineffective. The High Court erred under Section 482 CrPC by deciding factual disputes (e.g., retirement date/liability) prematurely, as these require trial evidence. Signatory status is irrelevant for partner liability under Section 141 NI Act if involvement in firm affairs is alleged.
Facts Of The Case:
Shivappa Reddy (Appellant) filed a criminal complaint under Section 138 of the Negotiable Instruments Act, 1881, against M/s AVS Constructions (Accused No.1 – Partnership Firm) and its partners, including S. Srinivasan (Respondent/Accused No.4). The complaint alleged that twelve cheques of ₹50 lakhs each (totaling ₹6 crore), issued by the Firm towards refund of sale consideration and signed by partner S. Yuvaraju (Accused No.2), were dishonored due to “stop payment” instructions. After statutory notice, the Appellant initiated proceedings before the Trial Court, which issued summons. Srinivasan (Respondent) filed a petition under Section 482 CrPC before the Karnataka High Court, claiming he retired from the Firm on 01.04.2015 (before the cheques were issued in 2020) and thus had no liability. The Appellant countered that Registrar of Firms records (Form-A) showed Srinivasan as an active partner when the cheques were issued; alleged the retirement deed was backdated; and emphasized Srinivasan’s failure to publish mandatory public notice of retirement in a vernacular newspaper under Section 72 of the Partnership Act, 1932. The High Court quashed proceedings against Srinivasan, accepting his retirement claim. The Supreme Court set aside this order, restoring the Trial Court proceedings.
Procedural History:
The case originated with Shivappa Reddy (Appellant) filing a complaint under Section 138 of the Negotiable Instruments Act, 1881, before the Trial Court (ACMM, Bengaluru, CC No.17788/2020) against M/s AVS Constructions and its partners, including S. Srinivasan (Respondent/Accused No.4), for dishonour of cheques totalling ₹6 crore. After summons were issued, Srinivasan filed a petition under Section 482 CrPC before the Karnataka High Court seeking quashing of proceedings, claiming he retired from the partnership before the cheques were issued (01.04.2015). The High Court allowed his petition on 23.09.2023, quashing proceedings against him. The Appellant then appealed to the Supreme Court (Criminal Appeal No. 4363 of 2024). On 19.05.2025, the Supreme Court set aside the High Court’s order, restored the Trial Court proceedings, and held that the High Court exceeded its jurisdiction under Section 482 CrPC by adjudicating disputed factual issues (retirement date and statutory compliance) requiring trial evidence.
READ ALSO :Supreme Court Rules Unreliable Witness & Lack of Demand Proof Sink Prosecution: Govt Official Cleared
Court Observation:
The Supreme Court observed that the High Court exceeded its jurisdiction under Section 482 CrPC by adjudicating disputed factual issues—specifically, the Respondent’s retirement date and statutory compliance—which require trial evidence. The Court emphasized that for a partner’s retirement from a registered firm to absolve liability under Section 138 NI Act, strict compliance with Section 72 of the Partnership Act, 1932, is mandatory. This includes publishing a public notice in a vernacular newspaper and updating the Registrar of Firms’ records (Sections 62–63). Non-compliance renders retirement legally ineffective, sustaining liability. Significantly, the Court clarified that a partner’s liability under Section 141 NI Act is not contingent on signing the cheque; active involvement in firm affairs (as alleged in the complaint) suffices to establish culpability. The High Court erred in ignoring these statutory requirements and prematurely dismissing charges.
Final Decision & Judgement:
The Supreme Court allowed the appeal filed by Shivappa Reddy, setting aside the Karnataka High Court’s order dated 23.09.2023. The bench held that the High Court exceeded its jurisdiction under Section 482 CrPC by quashing proceedings against S. Srinivasan (Respondent) based on disputed factual claims of retirement from the partnership firm. The Court restored the Trial Court proceedings (CC No.17788/2020 before ACMM, Bengaluru), directing it to adjudicate the matter on merits. It ruled that Srinivasan’s liability under Section 141 of the Negotiable Instruments Act, 1881, persists due to non-compliance with mandatory statutory formalities under Sections 62, 63, and 72 of the Indian Partnership Act, 1932 (public notice and Registrar of Firms updates). The Court clarified that signing the cheque is irrelevant for partner liability if involvement in firm affairs is alleged, and all observations are restricted to jurisdictional issues without influencing the trial’s merits.
Case Details:
Case Title:Shivappa Reddy vs. S. Srinivasan Citation:2025 INSC 729 Criminal Appeal No.:Criminal Appeal No. 4363 of 2024 Date of Judgment:May 19, 2025 Judges/Justice Name: Justice Abhay S. Oka & Justice Augustine George Masih
Download The Judgement Here