Authority: High Court of Karnataka at Bengaluru

Order Date: 25 September 2026

Case Overview

  • Parties: petitioner V.B. Nagaraj (Major) versus respondent M/s. Peregrine Phosphate (P) Ltd., represented by Director Madhu Kumar Varma and Manager Pavan G. Patil.
  • Petition: Criminal Petition No.4428 of 2019 filed under Section 482 of the Criminal Procedure Code seeking quash of proceedings initiated under Section 138 of the Negotiable Instruments Act in C.C.No.25126/2018 before the XLII Additional Chief Metropolitan Magistrate, Bengaluru.
  • Factual Matrix:
  • A partnership firm, Shree Vinayaka Traders, was formed on 20‑06‑2011 between accused Nos.2 and 3; accused No.1 dealt in fertilizers and pesticides.
  • The complainant supplied pesticides/fertilizers to accused No.1 and obtained signed blank cheques, which were to be presented as per instructions of accused No.2.
  • Accused No.2, T.M. Prabhakaraiah, died on 21‑05‑2017; the Karnataka Bank account of the partnership was subsequently blocked.
  • The complainant retrieved leftover stock and issued an acknowledgment on 06‑06‑2017.
  • On 28‑03‑2018 the complainant presented a signed cheque (collected earlier) alleging it was issued by accused Nos.2 and 3; the cheque was returned with the endorsement “account blocked”.
  • Notices served on accused No.1 and No.2 were returned with endorsements “party left” and “party expired” respectively; accused No.3 replied.
  • The complainant then instituted criminal proceedings under Section 138 of the NI Act.
  • Petitioner’s Arguments:
  • The “account blocked” endorsement indicates the cheque could not be honoured due to the death of a signatory, not due to insufficient funds.
  • Under Section 42(c) and Section 31(1) of the Partnership Act, the death of one of two partners dissolves the firm; therefore no partnership existed to issue the cheque after 21‑05‑2017.
  • Cited Supreme Court judgment in Commissioner of Income Tax v. Seth Govindram Sugar Mills (AIR 1996 SC 24) and Delhi High Court judgment in Farhad Suri & Another v. Praveen Choudhary & Others (16‑12‑2025) establishing that “account blocked” returns are outside the ambit of Section 138.
  • Noted RBI notification limiting cheque validity to three months; the cheque dated 28‑03‑2018 was more than ten months after the partner’s death, rendering it invalid.
  • Respondent’s Arguments:
  • Relied on Section 25 of the Partnership Act and the Apex Court decision in Dhanasingh Prabhu v. Chandrasekar & Another (SLP (Crl.) No.5706/2024, 14‑07‑2025) asserting joint liability of partners for firm’s acts.
  • Contended that the post‑dated cheque was issued before the partner’s death and that Section 138 proceedings could proceed.

Court’s Reasoning

  • The court examined the death certificate of T.M. Prabhakaraiah (death on 21‑05‑2017) and the stock‑return acknowledgment dated 06‑06‑2017, confirming the complainant’s knowledge of the death.
  • The cheque presented on 28‑03‑2018 bore a “account blocked” endorsement, indicating the dishonour was due to statutory blockage, not insufficient funds.
  • The court referenced the Supreme Court’s Seth Govindram Sugar Mills ruling that a partnership of two partners dissolves automatically on the death of one partner, and no new partner can be introduced without forming a new firm.
  • The Delhi High Court’s Farhad Suri decision and the Punjab & Haryana High Court’s Arvinderjit Kaur v. State of Haryana (29‑10‑2018) were cited to affirm that “account blocked” returns do not attract Section 138.
  • The RBI notification on cheque validity (three‑month period) further invalidated the cheque dated ten months after the partner’s death.
  • Consequently, the essential ingredient for an offence under Section 138 – dishonour due to insufficient funds – was absent.

Final Outcome

  • The petition is allowed.
  • All proceedings initiated under Section 138 of the Negotiable Instruments Act against the petitioner are hereby quashed.

Topics: Court Order, Negotiable Instruments Act, Partnership Law