Scr.a19702015 GJHC240248682015 204 31012017

R/SCR.
A/1970/2015 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CRIMINAL APPLICATION (QUASHING) NO. 1970 of 2015
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE J.B.PARDIWALA
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1 Whether Reporters of Local Papers may be allowed to

see the judgment ? YES
2 To be referred to the Reporter or not ?

YES
3 Whether their Lordships wish to see the fair copy of
the judgment ? NO
4 Whether this case involves a substantial question of

law as to the interpretation of the Constitution of India
NO
or any order made thereunder ?
==========================================================
SHAH RAJENDRABHAI JAYANTILAL....Applicant(s)
Versus
D.PRANJIVANDAS AND SONS PROP.DHIRAJLAL PRANJIVANDAS POPAT
& 1....Respondent(s)
==========================================================
Appearance:
MR.AMIT R JOSHI, ADVOCATE for the Applicant(s) No. 1
MR B S SOPARKAR, ADVOCATE for the Respondent(s) No. 1
APP for the Respondent(s) No. 2
==========================================================
CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA
Date : 31/01/2017
ORAL JUDGMENT
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R/SCR.A/1970/2015 JUDGMENT
1 By this writ application under Article 226 of the Constitution of
India, the writ applicant has prayed for the following reliefs:
“8(A) Your Lordships be please to quash and set aside the criminal case
no.22 of 2014 pending before the learned Chief Judicial Magistrate Court,
Patan in the interest of justice.
(B) Pending hearing and final disposal of this application, Your

Lordships be pleased to stay the further proceedings of the criminal case
no.22 of 2014 pending before the learned Chief Judicial Magistrate Court,
Patan in the interest of justice.
(C) Such other and further relief which your Lordships deem fit may
kindly be granted in the interest of justice.”
2 The case of the complainant may be summarised as under:
2.1 The complainant is one Kanaiyalal Dhirajlal Popat, serving as a
'Manager' of Dhirajlal Pranjivandas Popat, H.U.F. The H.U.F. is carrying
on business and is running a firm in the name of 'D. Pranjivandas and
Sons'. It is the case of the complainant that the accused herein is a
member of an H.U.F. running in the name of 'R.J. Shah', H.U.F. The
accused is the 'Karta' of the 'R.J. Shah', H.U.F.. The accused Nos.2 and 3,
in the complaint, are the members of the H.U.F. being the wife and son
of the 'Karta'. In connection with a business transaction with the
complainant, the accused, in his capacity as the 'Karta' – 'Manager' of the
R.J. Shah, H.U.F. issued a cheque dated 15th September 2013 for the
amount of Rs.5,00,000/ (Rupees Five Lac only) in favour of the
complainant drawn on the Sardargunj Mercantile Cooperative Bank,
Market Yard, Patan. The cheque in question drawn by the accused in
favour of the complainant came to be dishonoured, as the funds were
insufficient in the account maintained by the H.U.F.. In such
circumstances, a statutory Notice under Section 138 of the Negotiable
Instruments Act (for short, the “N.I. Act”) dated 21st November 2013 was
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served upon the accused persons by the complainant. As the amount was
not paid by the accused within the statutory time period, the
complainant filed a private complaint in the Court of the learned Chief
Judicial Magistrate, Patan for the offence punishable under Section 138
of the Negotiable Instruments Act, which came to be registered as the
Criminal Case No.22 of 2014.
3 The accused, being the 'Karta' of the H.U.F., is here before this
Court, praying for quashing of the proceedings of the criminal case.
● SUBMISSIONS ON BEHALF OF THE ACCUSED:
4 Mr. Amit R. Joshi, the learned counsel appearing for the accused
submitted that his client is a member of the H.U.F. and is the 'Karta' –
'Manager'. The H.U.F. is engaged in the business of trading. The name of
the firm is 'M.S. Traders'. It is submitted that a H.U.F. is a legal entity
and will constitute an association of individuals within the meaning of
Section 141 of the N.I. Act. In such circumstances, according to the
learned counsel, without impleading the H.U.F., as a legal entity or a
juridical person as one of the accused in the complaint, the member /
'Karta' of the H.U.F. alone cannot be prosecuted for the offence
punishable under Section 138 of the N.I. Act.
5 The learned counsel submitted that the 'Karta' of the H.U.F. is not
the owner of the firm, and therefore, the H.U.F., a legal entity i.e. as an
association of individuals, has got to be arraigned as an accused so as to
make the prosecution of the members of the H.U.F. maintainable for the
offence punishable under Section 138 of the N.I. Act. He submitted that
the H.U.F., being a legal entity, is a juristic person and a separate entity
from the coparcener. The 'Karta' of the H.U.F. exists because of the
H.U.F. Otherwise, the 'Karta' has no legal existence, and the prosecution
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of the 'Karta' is not maintainable under Section 138 of the N.I. Act in the
absence of the H.U.F.
6 The learned counsel submits that a H.U.F. is included in the

expression “person”, as defined in the Income Tax Act, 1961. As a
H.U.F., being the principal offender, has not been arraigned as an
accused, the prosecution of the 'Karta' of the H.U.F. for the offence
punishable under Section 138 of the N.I. Act should fail.
7 The learned counsel, in support of his submissions, has placed

reliance on the following decisions:
(1) Kapurchand Shrimal vs. Tax Recovery Officer, Hyderabad

[AIR 1969 SC 682]
(2) Mrs. Kshetra Mohan – Sannyasi Charan Sadhukhan vs.
Commissioner of Excess Profits Tax, West Bengal [AIR 1953 SC
516]
(3) Sathyaprema Manjunatha Gowda vs. Controller of Estate
Duty. Karnataka [(1997) 10 SCC 684]
(4) Income Tax Officer, Gorakhpur vs. Ram Prasad [(1973) 3
SCC 25]
(5) Alladi Narasimha Rao vs. M/s. Core Tree Solutions Pvt. Ltd,
A.C. Guards [2013 Criminal Law Journal 1046]
(6) United Phospherus Limited vs. Saiteja Fertilizers and
Pesticides [2003 (114) Company Cases 587]
(7) Aneeta Hada vs. Godfather Travels & Tours Pvt. Ltd [(2012)
5 SCC 661]
(8) Dadasaheb Rawal Cooperative Bank of Dondaicha vs. R.J.
Jain [2009 Criminal Law Journal 67]
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● SUBMISSIONS ON BEHALF OF THE COMPLAINANT:
8 On the other hand, this writ application has been vehemently
opposed by Mr. Davawala, the learned counsel appearing for the
complainant. Mr. Davawala submits that by any stretch of imagination, a
Hindu Undivided Family is not a firm nor an association of persons. In
such circumstances, an H.U.F. will not constitute an “association of
individuals”, according to the term “company”, as explained in Section
141 of the N.I. Act. He submits that the term “association of individuals”
means, as held by the Supreme Court in the case of Ramanlal Bhailal
Patel vs. State of Gujarat reported in (2008) 5 SCC 449, a group of
persons, who have become coowners by their own volition with a
common purpose. The learned counsel submits that the H.U.F., in the
present case, appears to be engaged in the business in the name of 'M.S.
Traders', and the members may be having a common purpose, i.e. to
carry on business, but in an H.U.F., the members do not become co
owners by their own free will and volition, but by birth.
9 Mr. Davawala submitted that a Hindu Undivided Family as such
has no legal entity distinct and separate from that of the members who
constitute it. It may be that a member of a Hindu Undivided Family may
continue to have certain personal rights and may be able to own
property in his own right and enter into a contract in his own right but a
Hindu Undivided Family is not like a company, partnership firm,
Corporation or a limited concern and it cannot, therefore, be said that it
has a legal entity distinct and separate from that of those who constitute
it.
10 Mr. Davawala submits that a joint Hindu Family is a unit to which
no outsider can be admitted by agreement; it is a status which can only
be acquired by birth or by adoption and the head or 'Karta' of that family
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has certain rights and, while acting within those rights, he can bind
every member of the family by his actions or deal with the join family
property which, though it does not belong to him and belongs to all, he
has been given the power to manager or dispose of, in the interest of the
family.
11 Mr. Davawala submits that the principles laid down by the

Supreme Court in the case of Aneeta Hada (supra) will have no
application to the case at hand. He submits that Section 141 of the Act is
concerned with the offences by the company. The explanation to Section
141 provides that “company” means any body corporate and includes a
firm or other association of individuals; and a “Director”, relating to a
firm, means a partner in the firm. He submits that there is no specific
inclusion of the H.U.F. in the definition of the term “company” in the
N.I. Act.
12 In support of his submissions, Mr. Davawala has placed reliance
on a decision of the Madras High Court in the case of Arpit Jhanwar vs.
Kamlesh Jain [(2012) 3 L.W. 776].
13 Having heard the learned counsel appearing for the parties and
having considered the materials on record, the only question that falls
for my consideration is whether an H.U.F. will constitute an “association
of individuals” according to the term “company” as explained in Section
141 of the Act.
14 For the purpose of answering the question posed as referred to
above, it is necessary to understand the concept of H.U.F.
15 WHAT IS AN H.U.F.?
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A Hindu Undivided Family is an extended family arrangement

prevalent among Hindus of the Indian subcontinent, consisting of many
generations living under the same roof. All the male members are blood
relatives and all the women are either mothers, wives, unmarried
daughters, or widowed relatives, all bound by the common sapinda
relationship. The joint family status being the result of birth, the
possession of joint cord that knits the members of the family together is
not property or business but the relationship. The family is headed by a
patriarch, usually the oldest male, who makes decisions on economic
and social matters on behalf of the entire family. All money goes to the
common pool and all property is held jointly. To put it in other words,
the H.U.F. is a family consists of all lineally descended from a common
ancestor. Hence, H.U.F. is a group is a group of members of the same
family. The 'father', or the “senior member” of the family called the
'Karta', ordinarily manages the property belonging to the Joint Family.
Hence, the status of H.U.F. cannot be termed as person.
The fact remains that every individual is interested to save his tax.
A very effective and legal way advised by the C.As. is creating an H.U.F.
A Hindu Undivided Family offers specific advantages as far as taxes is
concerned. The Income Tax Act and Wealth Tax Act recognize the
H.U.F. as an independent assessable or taxable entity. Therefore, an
H.U.F. enjoys all the deduction and exemptions as a separate assessee.
The overall objective behind the formation of the H.U.F. is to save tax by
having an extra benefit of slab rate, deductions and exemptions. Under
Section 4 of the Income Tax Act, 1961, the income tax is payable by
“every person”. “Person” includes a “Hindu Undivided Family” as
defined in Section 2(31). The definition of “Hindu Undivided Family” is
not found in the Income Tax Act. Therefore, the expression “Hindu
Undivided Family” must be construed in the sense in which it is
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understood under the “Hindu Law”. [See: Surjit Lal Chhabda vs. CIT
101 ITR 776(SC)]
The H.U.F. can be governed either by the Mitakshara Laws or by
Dayabhaga Laws. All the H.U.F. to the exception of the State of West
Bengal are governed by the Mitakshara Law. West Bengal follows the
Dayabhaga system.
16 The Supreme Court in the case of Sathyaprema (supra) observed
in paras 8, 9 and 10 as under:
“8...The Hindu joint family consists of male members descending lineally
from a common male ancestor, together with their mother, wives or
windows and unmarried daughters bound together by the fundamental
principle of sapindaship or family relationship which is the essence and
distinguishing feature of the institution. This body is purely a creature of
law and cannot be created by act of parties have insofar that by adoption
or marriage a stranger may be affiliated as a member thereof. An
undivided family which is the normal condition of Hindu society is
ordinarily joint not only in estate but in food and worship; therefore, not
only the concerns of the joint family, but whatever relates to their
commonality and their religious duties and observances are regulated by
the members or by the manager to whom they have, expressly or by
implication, delegated the task of regulation. The joint family status being
the result of birth, possession of joint properties is only an adjunct of the
joint family and is not necessary for its constitution. Nor is it necessary
that all the members possess rights or status even though the property of
the family is called joint family property.
9 On the other hand, coparcenary is a narrower body than a joint
family and consists of only those persons who have taken by birth an
interest in the property of the holder fro the time being and who can
enforce a partition whenever they like. It commences with a common
ancestor and includes a holder of joint property and only those males in
his male line who are not removed from him by more than three degrees.
Thus while a son, a grandson or a greatgrandson is a coparcener with the
holder of the property, the great greatgrandson cannot be coparcencer
with him, because he is removed by more than three degrees from the
holder.
10 Hindu Undivided Family is a concept and coparcenary is not one of
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the same under the Hindu Law. But for the purposes of taxation under the
Act, as in other tax measures, like the Incometax Act, they are treated as
one and the same...”
17 The Supreme Court in the case of Mrs. Kshetra (supra) observed
in para 6 as under:
“A Hindu undivided family is no doubt included in the expression "person"
as defined in the Indian Incometax Act as well as in the Excess Profits Tax
Act but it is not a juristic person for all purposes. The affairs of the Hindu
undivided family are looked after and managed by its Karta. When two
Kartas of two Hindu undivided families enter into it partnership
agreement the partnership is popularly described as one between the two
Hindu undivided families but in the eye of the law it is a partnership
between the two Kartas and the other members of the families do not 'ipso
facto' become partners. There is, however, nothing to prevent the
individual members of one Hindu undivided family from entering into a
partnership with the individual members of another Hindu undivided
family and in such a case it is a partnership between the individual
members and it is wholly inappropriate to describe such a partnership as
one between two Hindu undivided families.”
18 A Division Bench of the Allahabad High Court in the case of Ram
Kumar Ram Niwas Nanpara vs. Commissioner of Income Tax, U.P.
and Ajmer Merwara, Lucknow [AIR 1953 Allahabad 150] considered
the question whether a Hindu Undivided Family is a legal entity distinct
and separate from that of the members who constitute it. The Court
observed in para 11 as under:
“The next point for consideration is whether a Hindu undivided family as
such has a legal entity distinct and separate from that of the members who
constitute it. It may be that member of a Hindu undivided family may
continue to have certain personal rights and may be able to own property
in his own right and enter into a contract in his own right but a Hindu
undivided family is not like a corporation or a limited concern and it
cannot, therefore, be said that it has a legal entity quite distinct and
separate from that of those who constitute it. A joint Hindu family is a
unit to which no outsider can be admitted by agreement; it is a status
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which can only be acquired by birth or by adoption and the head or Karta
of that family has certain rights and, while acting within those rights, he
can bind every member of the family by his actions or deal with the joint
family property which, though it does not belong to him and belongs to
all, he has been given the power to manage or dispose of, in the interest of
the family. It is difficult to equate or define the position of a joint Hindu
family as understood under the Hindu Law with the modern conception of
a company or a firm or association of individuals for trade or business
purposes.”
● DIFFERENCES BETWEEN PARTNERSHIP & H.U.F. BUSINESS:
19 A Partnership comes into existence, by means of a contract
between partners, whereas, a joint Hindu family arises as a result of
status, i.e., by birth in the family. Accordingly, if two or more members
of an HUF carry on an inherited business, it is not a partnership because
it has been created by status or obtained by birth and not by an
agreement.
H.U.F. is a unique form of business existing only in India and is
governed by the provisions of the Hindu Law. It comes into existence by
operation of Hindu Law and not out of contract. The firm is owned by
the members of undivided Hindu family, called coparceners. The
business of an HUF is managed by the seniormost male member, also
known as Karta or Manager.
There are two schools of Hindu Law, namely,
• Dayabhaga, and;
• Mitakshara.
Dayabhaga It is applicable only to the states of West Bengal and Assam.
According to this school, only the male members become heirs on the
death of the father. Technically, H.U.F. business is not possible under
this system.
Page 10 of 34

Mitakshara It is applicable to the rest of India. According to this school,
a joint Hindu family consists of all persons including the wives and
unmarried daughters lineally descended from a common ancestor. But
only those persons constitute the firm who acquire by birth a
coparcenary interest in the joint ancestral property, such interest belongs
to three successive generations in the male line (son, grandson, and
great grandson) who inherit the ancestral property immediately on their
birth in the family. Thus, the property inherited by a Hindu from his
father, grandfather and great grandfather is regarded as his ancestral
property. The Hindu Law Succession Act, 1956 has extended the line of
coparcenary interest to female relatives of the deceased coparceners and
male relative claiming through such female relatives.
As the head of the joint family, the Karta has full control over business
affairs of the family. He also acts as the custodian of the firm’s assets. His
liability is unlimited, whereas, the liability of coparceners is limited to
the value of their individual interests in the joint ancestral property. The
death or insolvency of a coparcener or even that of the Karta does not
affect the life of the business of the family. However, an HUF firm can be
dissolved through mutual agreement among all the coparceners.
The main points of differences between a partnership and H.U.F.

business are as follows.
1. Basis of formation
A partnership arises out of a contract between partners. Whereas an HUF
arises by the operation of Hindu Law. It is created by status or birth in
the family, no agreement is needed for it.
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2. Regulating law
A partnership is governed by the provisions of the Indian Partnership
Act, 1932. An HUF business is governed by Hindu Law Succession Act.
3. Number of members
In a partnership business, the number of members cannot exceed 20 in
case of nonbanking business and 10 in case of banking business. But
there is no such ceiling on the number of members (coparceners) in
HUF.
4. Admission of new members
No new partner can be admitted to the existing partnership without the
consent of all the other partners. In case of HUF firm, a person becomes
a member (coparcener) merely by his birth.
5. Minor member
A minor cannot become a fullfledged partner in a firm; he can be
admitted only to the benefits of partnership. In an H.U.F., a male child
becomes a fullfledged member by birth.
6. Rights of females
In a partnership, women can become partners and they enjoy the same
rights and privileges, as do male partners. In case of an HUF business, on
the other hand, the membership is restricted to male members only.
However, as per Hindu Law Succession Act,1956, a female relative of a
deceased male member gets a coparcenery interest in the event of his
death.
7. Implied agency
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In a partnership, every partner has implied authority to represent the
firm and bind the other partners by his acts. In H.U.F. this right rests
with the Karta only, other members may be allowed by Karta expressly
or impliedly to contract debts on behalf of the firm.
8. Liability of members
In a partnership, the liability of all the partners is unlimited. Every
partner is jointly and severally liable to third parties for the full debts of
the firm. Whereas in case of HUF, liability of each member, except the
Karta, is limited to the extent of his share in the property of the family.
9. Right to accounts
Each partner not only enjoys a right to inspect the books of account of
the firm and demand a copy thereof, he can even demand the accounts
of the past dealings. But a coparcener has no right to ask for the
accounts of past dealings. He can ask for the position of the existing
assets only.
10. Mode of dissolution
A partnership firm is dissolved on the insolvency or death of a partner.
But the death, lunacy or insolvency of a coparcener does not affect an
HUF. It continues to operate even after the death of a coparcener.
● CONCEPT OF AN “ARTIFICIAL PERSON”:
20 Every human being is a person in the eye of law. When a person is
ordinarily understood to be a natural person, it only means a human
being. But a person is also artificially created and recognised in law as
such. Such persons are called in different names, such as "juristic
person", "juridical person", "legal entity" etc., In some countries, even
Page 13 of 34

human beings were not treated as persons in law, for example, in Roman
Law, a slave was not a person and he had no right to a family. In other
words, he was treated like an animal. In French colonies also, before the
slavery was abolished, the slaves were not treated as the legal persons.
They were given legal status of person only through a statute during the
later period. With the development of Society, cooperation among
various sections of people became absolutely necessary for the well
being of the humanity. Therefore, it became a natural necessity for the
formation of institutions like the corporations and companies, etc. These
institutions like corporations, companies etc., were given legal status of a
person. By virtue of the statutory recognition, these artificial persons
came to own property and enjoy various statutory rights and even some
constitutional rights. As the society started growing more and more,
there came more number of fictional personalities viz., juristic persons in
different names enjoying different kinds of rights and liabilities as
recognized under the various laws.[See: Abraham Memorial Education
Trust vs. C. Suresh Babu, 2013 (2) Bank Case 133]
21 The Supreme Court in Shiromani Gurdwara Prabandhak

Committee Vs. Som Nath Dass [(2000) 4 SCC 146] observed in para 19
as under:
"19. Thus, it is well settled and confirmed by the authorities on

jurisprudence and courts of various countries that for a bigger thrust of
sociopoliticalscientific development evolution of a fictional personality to
be a juristic person became inevitable. This may be any entity, living,
inanimate, objects or things. It may be a religious institution or any such
useful unit which may impel the courts to recognise it. This recognition is
for subserving the needs and faith of the society. A juristic person, like any
other natural person is in law also conferred with rights and obligations
and is dealt with in accordance with law. In other words, the entity acts
like a natural person but only through a designated person, whose acts are
processed within the ambit of law. When an idol was recognised as a
juristic person, it was known it could not act by itself. As in the case of
minor a guardian is appointed, so in the case of idol, a Shebait or
Page 14 of 34

manager is appointed to act on its behalf. In that sense, relation between
an idol and Shebait is akin to that of a minor and a guardian. As a minor
cannot express himself, so the idol, but like a guardian, the Shebait and
manager have limitations under which they have to act. Similarly, where
there is any endowment for charitable purpose it can create institutions
like a church, hospital, gurudwara etc. The entrustment of an endowed
fund for a purpose can only be used by the person so entrusted for that
purpose in as much as he receives it for that purpose alone in trust. When
the donor endows for an idol or for a mosque or for any institution, it
necessitates the creation of a juristic person. The law also circumscribes the
rights of any person receiving such entrustment to use it only for the
purpose of such a juristic person. The endowment may be given for various
purposes, may be for a church, idol, gurdwara or such other things that
the human faculty may conceive of, out of faith and conscience but it gains
the status of juristic person when it is recognised by the society as such."
(Emphasis added)
22 Let me now look into Sections 138 and 141 of the Negotiable
Instruments Act which proceed as follows:
“138. Dishonour of cheque for insufficiency, etc., of funds in the

account, Where any cheque drawn by a person on an account
maintained by him with a banker for payment of any amount of money to
another person from out of that account for the discharge, in whole or in
part, of any debt or other liability, is returned by the bank unpaid, either
because of the amount of money standing to the credit of that account is
insufficient to honour the cheque or that it exceeds the amount arranged
to be paid from that account by an agreement made with that bank, such
person shall be deemed to have committed an offence and shall, without
prejudice to any other provision of this Act, be punished with
imprisonment for a [a term which may be extended to two years], or with
fine which may extend to twice the amount of the cheque, or with both :...”
[emphasis supplied]
“141. Offences by companies. (1) If the person committing an offence
under section 138 is a company, every person who, at the time the offence
was committed, was in charge of, and was responsible to the company for
the conduct of the business of the company, as well as the company, shall
be deemed to be guilty of the offence and shall be liable to be proceeded
against and punished accordingly.
Provided that nothing contained in this subsection shall render any

person liable to punishment if he proves that the offence was committed
without his knowledge, or that he had exercised all due diligence to
prevent the commission of such offence :
Page 15 of 34

a [Provided further that where a person is nominated as a Director of a
company by virtue of his holding any office or employment in the Central
Government or State Government or a financial corporation owned or
controlled by the Central Government or the State Government, as the case
may be, he shall not be liable for prosecution under this Chapter.]
(2) Notwithstanding anything contained in subsection (1), where any

offence under this Act has been committed by a company and it is proved
that the offence has been committed with the consent or connivance of, or
is attributable to, any neglect on the part of, any director, manager,
secretary or other officer of the company, such director, manager, secretary
or other officer shall also be deemed to be guilty of that offence and shall
be liable to be proceeded against and punished accordingly.
Explanation.For the purposes of this section.
(a) "company" means any body corporation and includes a firm or other
association of individuals; and
(b) "director", in relation to a firm, means a partner in the firm.]”
2 The term “person” employed in Section 138 of the N.I. Act has not
been defined in the Act. In Section 3(42) of the General Clauses Act,
1897, the term “person” is defined as follows:
“3 (42) ”person” shall include any company or association or body of

individuals, whether incorporated or not;”
24 This provision is precisely in pari materia to Section 11 of IPC. The
definition of the term 'person' made both in Section 3(42) of the General
Clauses Act and Section 11 of IPC is not exhaustive. It is hardly a
definition. It is undoubtedly inclusive. The indication of the intention of
the Legislature is to give wider sense so as to mean not only natural
persons but to include artificial or juridical persons also, provided, such
artificial or juridical person is a legal entity. For instance, an idol is a
juridical person capable of owning property and is, therefore, a "person".
Page 16 of 34

But, a proprietary concern is not a legal entity and so, it is not a person
in terms of Section 11 of IPC. Similarly, a Hindu Undivided Family is a
legal entity capable of owning property and, therefore, undoubtedly,
such a HUF is a person as defined in Section 3(42) of the General
Clauses Act and Section 11 of IPC. Therefore, for an offence committed
by a HUF punishable under Section 138 of The Negotiable Instruments
Act, the HUF can be prosecuted and punished. But, at the same time,
since, the HUF is an artificial person, sentence of imprisonment can not
be imposed on the HUF. [vide the judgment of a Constitution Bench of
the Hon'ble Supreme Court in Standard Chartered Bank vs. Directorate
of Enforcement (2005) 4 SCC 530=20052LW. (Crl) 658]. [See: Arpit
Jhanwar (supra)].
25 For an offence committed by an artificial / juridical person, unless
it is specific provided in the statute, every individual who is a
component of the artificial or juridical person cannot be held vicariously
liable for punishment; it is only the artificial or juridical person who is
liable for punishment. A company incorporated under the Companies
Act is a person. To create such vicarious liability for the persons in
charge of the day to day affairs of the company along with the company,
the Legislature has enacted Section 141 of the Act referred to above.
26 In the case at hand, the argument canvassed on behalf of the

applicant being the 'Karta' of the H.U.F. is that an H.U.F. is a legal entity
and should be read in Section 141 of the N.I. Act. In other words,
according to the applicant, an H.U.F. is a company as defined in Section
141 of the Act. If it is argued that if that be so, then the H.U.F. is a
“association of individuals” as expressed in the explanation (a) to
Section 141 of the N.I. Act.
Page 17 of 34

27 The explanation (a) to Section 141 of the N.I. Act, would go to
indicate that it is indisputably an inclusive definition. The use of the
word “include” would clearly indicate the intention of the legislature to
enlarge the meaning of the word used in the statute. The Supreme Court
in Ramanlal Bhailal Patel (supra) held that the word must be construed
as comprehending not only such things which they signify according to
their natural import, but also those things which the interpretation
clause declares that they shall include. Thus, where a definition uses the
word “includes”, as contrasted from means, the word defined not only
bears its ordinary, popular and natural meaning, but in addition also
bears the extended statutory meaning. [See: Arpit Jhanwar (supra)].
28 The Supreme Court in the case of Ramanlal Bhailal Patel (supra)
considered the legal meaning of the word “person”. The Supreme Court
considered in context with the Gujarat Agricultural Lands Ceiling Act,
1960. I may quote the observations made by the Supreme Court as
contained from paras 22 to 26 as under:
“22 The extent of land that could be held by the appellants depends

upon the interpretation of the word 'person' in section 6(1) of the Ceiling
Act which provides that "no person shall be entitled to hold land in excess
of the ceiling area". If the ten coowners are considered as an 'association
of persons' or 'body of individuals', and consequently as a 'person', then the
ten coowners together as a person, will be entitled to only one unit of land
which is the ceiling area per person. But if 'association of persons' or body
of individuals is not a 'person', or if a coownership is not an association of
person/body of individuals, then each coowner or the family of each co
owner, as the case may be will be a separate 'person' having regard to the
definition of person in section 2(21) of Ceiling Act, in which event, each
family will be entitled to hold one unit of land.
23 The word 'person' is defined in the Act, but it is an inclusive

definition, that is "a person includes a joint family." Where the definition
is an inclusive definition, the use of the word 'includes' indicates an
intention to enlarge the meaning of the word used in the Statute.
Consequently, the word must be construed as comprehending not only
such things which they signify according to their natural import, but also
Page 18 of 34

those things which the interpretation clause declares that they shall
include. Thus, where a definition uses the word 'includes', as contrasted
from 'means', the word defined not only bears its ordinary popular and
natural meaning, but in addition also bear the extended statutory
meaning (See S.K. Gupta v. K.P. Jain, AIR 1979 SC 734 following
Dilworth vs. Commissioner of Stamps, 1899 AC 99 and Jobbins vs.
Middlesex County Council 1949 (1) KB 142).
24 The ordinary, popular and natural meaning of the word 'person' is
'a specific individual human being'. But in law the word 'person' has a
slightly different connotation, and refers to any entity that is recognized by
law as having the rights and duties of a human being. Salmond defines
'person' as 'any being whom the law regards as capable of rights and
duties' or as 'a being, whether human or not, of which rights and duties
are the attributes' (Jurisprudence : 12th Edition Page 299]. Thus the word
'person', in law, unless otherwise intended, refers not only to a natural
person (male or female human being), but also any legal person (that is
an entity that is recognized by law as having or capable of having rights
and duties). The General Clauses Act thus defines a 'person' as including a
corporation or an association of persons or a body of individuals whether
incorporated or not. The said general legal definition is, however, either
modified or restricted or expanded in different statutes with reference to
the object of the enactment or the context in which it is used. For instance,
the definition of the word 'person' in Income Tax Act, is very wide and
includes an individual, a Hindu Undivided Family, a company, a firm, an
association of persons or body of individuals whether incorporated or not,
a local authority and every other artificial juridical person. At the other
extreme is the Citizenship Act, section 2(f) of which reads thus : "Person
does not include any company or association or body of individuals
whether incorporated or not." Similarly, the definition under Section 2(g)
of Representation of the People Act 1950, is "person" does not include a
body of persons.
25 Both definitions of the word 'person', in General Clauses Act and
Ceiling Act, are inclusive definitions. The inclusive definition of 'person' in
General Clauses Act applies to all Gujarat Act unless there is anything
repugnant in the subject or the context. The inclusive definition of 'person'
in section 2(21) of the Ceiling Act, does not indicate anything repugnant
to the definition of 'person' in General Clauses Act, but merely adds 'joint
family' to the existing definition. Therefore the definition of person in the
Ceiling Act, would include the definition of person in section 3(35) of
General Clauses Act. The resultant position can be stated thus : The
definition of person in General Clauses Act, being an inclusive definition,
would include the ordinary, popular and general meaning and those
specifically included in the definition. The inclusive definition of 'person' in
the Ceiling Act, in the absence of any exclusion, would have the same
meaning assigned to the word in the General Clauses Act, and in addition,
Page 19 of 34

a joint family' as defined. Thus, the word 'person' in the Ceiling Act will,
unless the context otherwise requires, refer to :
(i) a natural human being,
(ii) any legal entity which is capable of possessing rights and duties,
including any company or association of persons or body of individuals
(whether incorporated or not); and
(iii) a Hindu Undivided Family or any other group or unit of persons, the
members of which by custom or usage, are joint in estate and residence.
26 We are fortified in this view by the decision of this Court in

Hasmukhalal Dahayabhai vs. State of Gujarat, 1976 (4) SCC 100,
wherein this Court had occasion to consider the definition of 'person' in the
Ceiling Act, in a different context. It was contended in that case that in
view of the definition of 'person' in General Clauses Act, 1897, a central
enactment, that is, 'person' shall include any company or association or
body of individuals, whether incorporated or not, there cannot be a
different definition in the Ceiling Act, and therefore, section 6(2) of the
Ceiling Act treating family as a 'person' was unconstitutional. It was
pointed out that section 6(2) had the effect of making a person who held
land within ceiling limit, to lose part of his/ her holding, on marriage to
someone who also held land within ceiling limit. (For example, if a
bachelor who was holding 35 acres of land which is within ceiling limit,
married someone who held 20 acres, they will together lose 19 acres by
reason of the fact that they formed a 'family'). This Court negatived the
challenge to the definition of 'person'. In that context this Court observed
that the term 'person' is not, strictly speaking, defined in the Act, and the
definition merely clarified that the term includes a joint family and did not
exclude an individual from being a person in the eye of law. This Court
observed that the term 'person' for the purposes of Ceiling Act would
include individuals as natural persons as well as group or body of
individuals as artificial persons, as also a joint family and a family. This
Court proceeded to explain section 6(2) thus:
"16. We do not find any fixed concept of "person" anywhere. No

doubt the concept is wide so that it could be contended that it
should not be narrowed down or confined. But does Section 6(2) do
that? Section 6(2) does not either disable a husband or wife from
owning or holding their separate properties separately. It does not
merge or destroy their separate legal personalities. It requires their
separate holdings to be grouped together as though they were held
by one person only for the purpose of determining the ceiling limit
for each member of a family. It may indirectly have the effect of
disabling a member of a family from holding land upto the
prescribed ceiling limit for a person holding as an individual. In
Page 20 of 34

other words, the result is that such a member of a family will have
to be content with a holding less than that of an unmarried
individual. It has the effect of making it clear that what have to be
grouped together are the separate properties of individuals
belonging to families other than what are "joint families", in law. It
takes in and applies to members of families other than undivided
Hindu families. It means that married persons and their minor
children will have to be viewed as though they hold one lot together
even though they retain their separate legal personalities and
remain competent owners of their separate holdings. It does not
affect either their legal status or competence. It does reduce their
individual holdings."”
29 In South Gujarat Roofing Tiles Manufactures Association and

another vs. the State of Gujarat and another, (1976) 4 SCC 601, the
Supreme Court has held that "though the word "include" is generally
used in interpretation clauses as a word of enlargement, in some cases
the context might suggest a different intention". When the liberty of the
subject is involved having penal consequences, then, the word 'include'
should receive strict interpretation and not liberal interpretation.
Therefore, it should be interpreted having reference to the context of the
Act. Admittedly, the term company includes an Association of
Individuals. Had it been the intention of the Parliament to bring in a
HUF within the meaning of the term company, as it has been done in the
other enactments, like the Income Tax Act, it would have specifically
included the same in express terms in this Act also. The very fact that it
has not been done so would only reflect the intention of the Parliament
not to include a HUF as a company in terms of Section 141 of the Act.
[See: Arpit Jhanwar (supra)].
● CONCEPT OF “ASSOCIATION OF INDIVIDUALS”:
30 According to the English Oxford Dictionary, "associate" means :
“to join in common purpose, action or condition; to link together, unite,
Page 21 of 34

combine, ally, confederate." In my opinion, this connotes that when two or
more persons unite together of their own free volition in some common
purpose or action they can be deemed to have associated together and
formed an association.
31 The expression "Association of individuals" was considered by a

Division Bench of the Calcutta High Court in a decision reported in
'B.N. Elias, In re', 19353 ITR 408 (A). At page 415 Derbyshire, C.J., in
delivering the judgment quoted with approval the following passage
from the judgment of Cotton, L.J. in Smith v. Anderson, (1880) 15 Ch
D 247 at p. 282 (B) :
"I do not think it very material to consider how far the word 'association'
differs from company or partnership, but I think we may say that if
'association' is intended to denote something different from a company or
partnership, it must be judged by its two companions between which it
stands, and it must denote something where the associates are in the
nature of partners'."
Costello, J., in considering the same question, at p. 417 observed :
"Mr. Banerji invited us to take upon ourselves the difficult but not indeed
impossible task of laying down a general definition of the expression
"association of individuals". In my opinion that is not desirable from any
point of view whatever. Each case must be decided upon its own peculiar
facts and circumstances. When we find, as we do find in this case, that
there is a combination of persons formed for the promotion of a joint
enterprise banded together if I may so put it, coadventures, to use an
archaic expression, then I think no difficulty whatever arises in the way of
saying that in this particular case these four persons did constitute an
'association of individuals' within the meaning of both S. 3 and S. 55,
Page 22 of 34

Incometax Act, 1922."
32 The views taken in decisions reported in Mufti Mohammad Aslam
vs. Commissioner of Incometax, U. P., 19364 ITR 412 : (AIR 1936
All 817) (C); In the matter of Keshardas Chamria, 19375 ITR 246 :
(AIR 1937 Cal 583) (D) and Mohamad Abdul Kareem and Co. vs.
Commissioner of Incometax, Madras, 194816 ITR 412 : (AIR 1949
Mad 509) (E) have gone still further and held that the expression
"association of persons" should be read ejusdem generis with the word
"firm" immediately preceding it; and before there can be an association
of individuals within the meaning of the Act it must be shown that the
association has at least some of the attributes of a firm or partnership,
though not in the strictly legal sense of the term.
33 Beaumont, C.J., in delivering judgment in Commissioner of

Incometax, Bombay vs. Laxmidas Devidas, 19375 ITR 584 : (AIR
1938 Bom 41) (F), preferred the rule laid down in B.N. Elias, In re (A)
(supra) and dissented from the one taken in 19364 ITR 412 : (AIR
1936 All 817) (C) (cit. sup.).
34 The expression was also considered in Commissioner of Income
tax, Burma vs. M.A. Baporia, 19397 ITR 225 : (AIR 1939 Rang 258)
(SB) (G), and Roberts, C.J., in considering the question cited with
approval the observations of Costello, J., in B.N. Elias, In re (A), (supra).
35 For the purposes of this case, it is not necessary for me to express
myself as to whether the expression "association of persons" should be
read ejusdem generis with the word "firm." Suffice it to say that before
any group of persons can be called an association of persons it must be
established on facts that they are in the nature of partners, i.e. in my
Page 23 of 34

opinion, the established facts of the case must at least lead to an
inference that the members of the group of their volition or free will
have joined in a venture with a view to earn profit.
36 In 'Commissioner of Incometax, Burma vs. M.A. Baporia', AIR
1939 Bang 258 (SB) (B), it was held that the expression "association of
individuals" in Section 3 of the Act must be construed 'ejusdem generis'
not only with the word immediately preceding i.e. "firm" but with all
other groups of assessees mentioned in the section. The common generic
quality appears to be joint interest. There must be some kind of
arrangement amongst the adult "persons" to indicate their intention to
earn income profits and gains in common. In 'Mohammad Aslam vs.
Commissioner of Incometax U.P.', AIR 1936 All 317 (C), the learned
Judges preferred to construe the expression as ' ejusdem generis ' with the
word immediately preceding i.e. "firm". According to them, such
association must have some at least of the attributes of a firm or
partnership though not strictly in the legal sense of the term. For the
purpose of this case it is not necessary to resolve this conflict. In any
view, there must be some kind of scheme of common management for
the purpose of earning profits, gain, or income and an agent to carry it
out.
37 The Supreme Court in the case of Ramanlal Bhailal Patel (supra)
in context with the provisions of the Gujarat Agricultural Lands Ceiling
Act, 1960 (27 of 1961) considered an important question whether the
coowners are together a “person”. The Supreme Court explained the
terms “association of persons” and “body of individuals”. I may quote the
relevant paras as under:
“27 When several persons acquire undivided shares (as contrasted from
defined portions) in a property, either equal or unequal, they become co
Page 24 of 34

owners of the property; or where an owner of a property transfers a share
in the property to another, the transferee becomes a coowner along with
the original owner. To be termed as coowners, the right of each owner
should be coordinate with the other 'owners'. If the right of one is higher
in degree than that of the other, there is no coownership. For example, a
mortgagor and mortgagee are not coowners. A lessor and lessee are not
coowners. Whether the shares are equal or not, each coowner is entitled
to be in possession of every part of the property, jointly with the other co
owners. In Sri Ram Pasricha v. Jagannath [AIR 1976 SC 2335], this
Court observed :
"Jurisprudentially it is not correct to say that a coowner of a

property is not its owner. He owns every part of the composite
property along with others and it cannot be said that he is only a
partowner or a fractional owner of the property. The position will
change only when partition takes place. .."
This Court also relied on the following passage from Salmond's

'Jurisprudence' :
"It is an undivided unity, which is vested at the same time in more than
one person The several ownership of a part is a different thing from the co
ownership of the whole. So soon as each of two coowners begins to own a
part of the thing instead of the whole of it, the coownership has been
dissolved into sole ownership by the process known as partition. Co
ownership involves the undivided integrity of what is owned."
28 The terms 'association of persons' and 'body of individuals' (which
are interchangeable) have a legal connotation and refer to an entity
having rights and duties. They are not to be understood literally. For
example, if half a dozen people are travelling in a car or a boat, or
standing in a bus stop, they may be a group of persons or a 'body of
individuals' in the literal sense. But they are not an association of
persons/body of individuals in the legal sense. When a calamity occurs or
a disaster strikes, and a band of volunteers or doctors meet at the site and
associate or cooperate with each other for providing relief to victims, and
not doing anything for their own benefit, they may literally be an
association of persons, but they are not 'an association of persons/ body of
individuals' in the legal sense. A mere combination of persons or coming
together of persons without anything more, without any intention to have
a joint venture or carry on some common activity with a common
understanding and purpose will not convert two or more persons into a
body of individuals/association of persons. An 'association of persons/body
of individuals' is one in which two or more persons join in a common
purpose and common action to achieve some common benefit. Where there
is a combination of individuals by volition of the parties, engaged together
in some joint enterprise or venture, it is known as 'association of
Page 25 of 34

persons/body of individuals'. The common object will have some relevance
to determine whether a group or set of persons is an association of persons
or body of individuals with reference to a particular statute. For example,
when the said terms 'association of persons' or 'body of individuals' occur
in a section which imposes a tax on income, the association must be one
the object of which is to produce income, profit or gain, [vide :
Commissioner of Income Tax vs. Indira Balkrishna (AIR 1960 SC
1172), Mohammed Noorulla vs. Commissioner of Income Tax,
Madras (AIR 1961 SC 1043), M.V. Shanmugam vs. Commissioner of
Income Tax, Madras (AIR 1970 SC 1707) and Meera and Company
vs. Commissioner of Income Tax, 1997 (4) SCC 677). But the object
need not always be to carry on commercial or business activity. For
example, when the word 'person' occurs in a statute relating to agriculture
or ceiling on land holding, the term 'association of persons/body of
individuals' may refer to a combination of individuals who join together to
acquire and own land as coowners and carry on agricultural operations
as a joint enterprise.
29 Normally, where a group of persons have not become coowners by
their volition with a common purpose, they cannot be considered as a
'person'. When the children of the owner of a property succeed to his
property by testamentary succession or inherit by operation of law, they
become coowners, but the coownership is not by volition of parties nor do
they have any common purpose. Each can act in regard to his/ her share,
on his/her own, without any right or obligation towards the other owners.
The legal heirs though coowners, do not automatically become an
'association of persons/ body of individuals'. When different persons buy
undivided shares in a plot of land and engage a common developer to
construct an apartment building , with individual ownership in regard to
respective apartment and joint ownership of common areas, the coowners
of the plot of land, do not become an 'association of persons/body of
individuals', in the absence of a deeming provision in a statute or an
agreement. Similarly, when two or more persons merely purchase a
property, under a common sale deed, without any agreement to have a
common or joint venture, they will not become an 'association of
persons/body of individuals'. Mere purchase under a common deed
without anything more, will not convert a coownership into a joint
enterprise. Thus when there are ten coowners of a property, they are ten
persons and not a 'body of individuals' to be treated as a 'single person'.
But if the coowners proceed further and enter into an arrangement or
agreement to have a joint enterprise or venture to produce a common
result for their benefit, then the coowners may answer the definition of a
'person'.”
38 A learned Single Judge of the Andhra Pradesh High Court in the
case of Alladi Narasimha Rao (supra) considered the question whether
Page 26 of 34

the words “other association of individuals” should be in relation to a
business enterprise or a business deal. I may quote the relevant
observations made by the learned Judge as contained in paras 13, 14
and 15 as under:
“13 In Commissioner of Income Tax, Bombay v. Indira Balkrishna,
(AIR 1960 SC 1172) while dealing with Section 3 of the Incometax Act,
1922 it was held that the word "associate" means, according to the Oxford
Dictionary, "to join in common purpose". Therefore, an association of
persons must be one in which two or more persons join in a common
purpose or common action, and as the words occur in the Section which
imposes a tax on income, the association must be one the object of which is
to produce income, profits or gains".
14 There is no specification in the Explanation (a) to Section 141 of
the Act as to whether the words "other association of individuals" should
be in relation to a business enterprise or a business deal. The intendment
of these words can be gathered by examining in which context those words
were employed. In order to have clear picture of this aspect, it is also
necessary to examine in what context the words "company" and "firm" are
employed in the Section. These words associate with business enterprises.
Thereby when the words "association of individuals" are employed in the
Explanation as per the legislative intendment those words should be taken
to have same connotation with the other words subject to their ambit. This
emphasizes that the very same words cannot be taken as meant just an
association of individuals formed for any other purpose also in the present
context.
15 The MoU was executed between all the accused on one hand and
the complainant on the other with reference to the payment of rents for
the buildings. Can that be termed as "business deal"? Certainly not,
because it is only an understanding with regards to the payment of rents
which is different from the word "business"; therefore, it cannot be held
that there was "other association of individuals" formed for a definite
purpose of conducting or achieving something. Thereby it is not proper to
bring the acts of A1 to A6 and A8 within the ambit of Section 138 read
with Section 141 of the Act, which of course does not preclude the
examination of the matter from a different angle if there is a scope to do
so. In other words if the ingredients of cheating are satisfied with reference
to the material available, the Court below is at liberty to proceed in that
line as per law. That Court has to exercise its discretion judicially in
accordance with the authority conferred upon it.”
Page 27 of 34

39 The Supreme Court in the case of Income Tax Officer, Gorakhpur
(supra), in context with the Excess Profits Tax Act, 1940 considered the
question whether a Hindu Undivided Family is a firm or an association
of person. The Supreme Court answered the question in para 10, which
reads as under:
“This provision applies only to firms and associations of persons. Hindu
undivided family is neither a firm nor an association of persons. It is a
separate entity by itself. That is made clear by Section 3 of the Indian
IncomeTax Act, 1922 which classifies the assessee under the heads
“individuals”. “Hindu undivided families” “companies”, “local authorities”,
“firms” and “other associations of persons”.... If Hindu undivided family is
to be considered as an association of persons, there was no point in
making separate provision for the assessment of Hindu undivided family.
This conclusion is strengthened by Section 25A of the Indian IncomeTax
Act, 1922 which provides for the assessment of Hindu undivided family
after its partition.”
40 In the case of Commissioner of Income Tax, Bombay North,

Kutch and Saurashtra, Ahmedabad vs. Smt. Indira Balkrishna [AIR
1960 Supreme Court 1172] in context with Section 3 of the Income Tax
(11 of 1922) considered the question as to what would constitute an
“association of person”. The Supreme Court in paras 9 and 10 observed
as under:
“9. It is enough for our purpose to refer to three decisions : In re, B. N.
Elias, 19353 ITR 408 (Cal); Commissioner of Incometax, Bombay v.
Laxmidas Devidas, 19375 ITR 584 (Bom) : and in re. Dwarkanath
Harishchandra, 19375 ITR 716 : (AIR 1938 Bom 353). In 19353
ITR 408 (Cal ) Derbyshire, C. J. rightly pointed out that the word
"associate" means, according to the Oxford dictionary, "to join in common
purpose, or to joint in an action." Therefore, an association of persons
must be one in which two or more persons join in a common purpose or
common action, and as the words occur in a section which imposes a tax
on income, the association must be on the object of which is to produce
income, profits or gains. This was the view expressed by Beaumout, C. J. in
19375 ITR 584 (Bom) at p. 589 and also in 19375 ITR 76 : (AIR
1938 Bom 353). In 19353 ITR 408 (Cal ) Costella, J. put the test in
more forceful language. He said : "It may well be that the intention of the
Page 28 of 34

legislature was to hit combinations of individuals who were engaged

together in some joint enterprise but did not in law constitute
partnership.....When we find....that there is a combination of persons
formed for the promotion of a joint enterprise....then I think no difficulty
arises in the way of saying that these persons did constitute an
association......."
10. We think that the aforesaid decisions correctly lay down the crucial
test for determining what is an association of persons within the meaning
of S. 3 of the Incometax Act, and they have been accepted and followed in
a number of later decisions of different High Courts to all of which it is
unnecessary to call attention. It is, however, necessary to add some words
of caution here. There is no formula of universal application as to what
facts, how many of them and of what nature, are necessary to come to a
conclusion that there is an association of persons within the meaning of S.
3; it must depend on the particular facts and circumstances of each case as
to whether the conclusion can be drawn or not.”
41 Thus, what is discernible from the principles explained in the

decisions referred to above is that the word “association” implies the
result of an agreement giving rise to the rights and obligations of one
against the other. Persona who have no mutual rights and obligations do
not constitute an association because they happen to have a common
interest or several interests in something which is to be divided between
them. James L.J. in Smith vs. Andersen, (1880) 15 Ch. Div. 247 at p.
273 : (50 L.J. Ch. 39) has observed as follows :
"Now there are three words there, 'company, association, or partnership.' I
cannot understand what the difference is between a company and an
association. The word association, in the sense in which it is now
commonly used, is etymologically inaccurate, for 'association' does not
properly describe the thing formed, but properly and etymologically
describes the act of associating together, from which act of associating
there is formed a company or partnership."
And again
"A company or association (which I take to be synonymous terms) is the
result of an arrangement by which parties intend to form a partnership
which is constantly changing."
Page 29 of 34

He laid stress on the fact that an association creates mutual rights and
obligations between the persona associating and observed as follows :
"Persons who have no mutual rights and obligations do not, according to
my view, constitute an association because they happen to have a common
interest or several interests in something which is to be divided between
them."
42 In the case of United Phospherus Limited (supra), a learned

Single Judge of High Court of Andhra Pradesh observed in paras 10 and
11 as under:
“10 A reading of Explanation (1) indicates that the express “company”
shall mean a body corporate and includes a firm or other association of
individuals. The term “other association of individuals cannot be
understood to refer even to informal understandings between individuals.
It has to be understood in the context of body corporate and partnership
firms. The principles of ejusdem generis gets attracted in such case. The
“association of individuals” should be of similar nature as companies and
partnership firms.
11 Apart from companies and partnership firms, the law provides for
registration of “association of individuals” such as those under the
Societies Registration Act. The reference can be only to such “association of
individuals” and not any other loosely knitted, uncertain and amoebic
gatherings. In fact, to hold an individual responsible in the absence of such
a process of registration or incorporation would just be next to
impossibility, Conversely, if such a procedure is permitted, even third
parties can be held liable though they do not have any legal or other
relationships with such unincorporated and unregistered agencies.”
43 A learned Single Judge of the Madras High Court in the case of
Arpit Jhanwar (supra), after referring to and relying upon the decision
of the Supreme Court in the case of Ramanlal Bhailal Patel (supra), has
answered the very same question which has fallen for my consideration
in the case at hand as under:
“This dictum laid down by the Hon'ble Supreme Court categorically

answers the question involved in the instant cases. As we have seen, as per
Section 141 of the Act, the term company includes an Association of
Page 30 of 34

Individuals. Here, the term Association of Individuals means, as has been
held by the Hon'ble Supreme Court, a group of persons who have become
coowners by their own volition with a common purpose. If the co
ownership is not by volition nor do they have any common purpose then,
the coowners will not constitute an Association of Individuals in terms of
Section 141 of the Act. In a HUF, the members do not become coowners
by their own volition and there is also no common purpose in their co
ownership. As has been held by the Hon'ble Supreme Court, each member
of the HUF can act in regard to his or her share without any request or
obligation to the other owners. They do not automatically become an
Association of persons/body of individuals. Thus, the law laid down by the
Hon'ble Supreme Court squarely applies to the Negotiable Instruments Act,
for the purpose of understanding the definition of the term company and
thus, a HUF can not be a company in terms of Section 141 of the Act.”
44 Thus, I have reached to the conclusion that although the H.U.F. in
the case at hand may be engaged in a business and is running a firm in
the name of M.S. Traders and may be having a common purpose, yet
what is missing is the element of free will and volition. A mere
combination of individuals will not constitute an “association of
individuals” . To make it as an “association of individuals”, in terms of
Section 141 of the N.I. Act, it is absolutely necessary that the
combination of individuals must be on their own free will and volition.
Secondly, it is also necessary that such combination of individuals must
be with a common purpose. There may be a common purpose to be
carried forward by an H.U.F., but an individual becomes a member of
the H.U.F., not on his own free will and volition, but by status and birth.
45 I may quote at the cost of repetition the observations of the

Supreme Court in the case of Commissioner of Income Tax, Bombay
North, Kutch and Saurashtra (supra) as under:
“There is no formula of universal application as to what facts, how many
of them and of what nature, are necessary to come to a conclusion that
there is an association of persons within the meaning of S. 3; it must
depend on the particular facts and circumstances of each case as to
Page 31 of 34

whether the conclusion can be drawn or not.”
46 The view taken by the Madras High Court in the case of Arpit

Jhanwar (supra) is quite commendable and I am in agreement with the
reasonings assigned in the said judgment.
47 Let me now look into the decision of the Bombay High Court in
the case of Dadasaheb Rawal (supra) on which strong reliance is placed
by the learned counsel appearing for the applicant. The learned Single
Judge of the Bombay High Court in the case of Dadasaheb Rawal
(supra) observed in paras 7, 8, 9, 10 and 11 as under:
“7. It is well settled that in a joint family business, no member of the
family can say that he or she is the owner to the extent of any particular
share in the profits and assets. There is unity of ownership and community
of interest. The pattern of accounts of the joint family business is different
from those of a partnership. In the case of joint Hindu family business, the
shares of the individual members in the profits and loss are not worked
out unlike in case of partnership account. So far as the joint Hindu family
business is concerned, the Manager is liable not only to the extent of his
share in the joint family property, but also personally.
8. The Explanation appended to Section 141 may be considered for the

present purpose. It reads as follows.
"141. Offences by companies.
(1) *****
(2) *****
Explanation For the purposes of this section,
(a) "company" means any body corporate and includes a firm or
other association of individuals; and
(b) "director", in relation to a firm, means a partner in the firm."
9. A plain reading of the expression "company" as used in subclause (a) of
the Explanation is that it is inclusive of any body corporate or "other
association of individuals". The term "association of individuals" will
include club, trust, HUF business, etc. It shall have to be construed ejusdem
generis along with other expressions "company" or "firm". Therefore, a
joint family business must be deemed as a juristic person like a company
Page 32 of 34

or firm. When it is specifically alleged that the respondent Nos. 1 and 2
are the joint proprietors/owners of the business of M/s New Sheetal
Traders, which is a joint family business of themselves and their son
Sheetal, prima facie, they are covered under Section 141 of the Negotiable
Instruments Act in view of the Explanation appended thereto.
10. In "Baskar v. Muthuswamy" (2001) 106 Comp Cas 489, a Bench
of Madras High Court held that where there were positive allegations in
the complaint that the accused was partner of the firm, but he denied his
such status on strength of extracts from Register of Firms, it was improper
to go into evidence at the premature stage. It was held that the true state
of affairs could only be gone into at the stage of trial. Hence, the Bench of
Madras High Court declined to quash the process issued against the
accused. It is also well settled in view of Nair (K.P.G.) v. Jindal Menthol
India Ltd." (2001) 104 Comp Cas 290 that the words of Section 141
(1) need not be incorporated in a complaint as magic words but substance
of the allegations read as a whole, should fulfill its requirements.
11. Section 141 is comprehensive. It would cover all types of business

organisations which are shown therein. The definition is inclusive and is
used to convey something more than what is defined Consequently, the
term "association of individuals" will include Hindu Undivided Family of
which the business is said to be a joint concern. Section 138 of the
Negotiable Instruments Act, 1881 is enacted in order to safeguard the
credibility of commercial transactions and to prevent bouncing of cheques
by providing personal liability against the drawer of the cheque. In case of
a cheque issued by the firm, the drawer of the cheque is the firm. In case of
cheque issued by the business firm of Joint Hindu Family, all the members
can be roped into as the drawers of the cheques though signatory is one of
them. Under these circumstances, the impugned order is unsustainable.
The learned Sessions Judge failed to see that quashing of the process at the
premature stage was not called for in view of the Explanation appended to
Section 141 of the Negotiable Instruments Act. In any case, at such a
premature stage, the process ought not to have been quashed against the
respondent Nos. 1 and 2. The prospective defence of the respondent Nos. 1
and 2 could not be a sufficient ground to quash the order of process issued
against them. Needless to say, the impugned order is patently illegal and
liable to be interfered with and deserves to be set aside.”
48 The learned Single Judge took the view that Section 141 is
comprehensive and would cover all types of business organisations. It is
difficult for me to subscribe to the view taken by the learned Single
Judge of the Bombay High Court, more particularly, in view of the
Page 33 of 34

decision of the Supreme Court in the case of Ramanlal Bhailal Patel
(supra).
49 I take notice of the fact that the decision of the Supreme Court in
the case of Ramanlal Bhailal Patel (supra) is dated 5th February 2008.
Whereas the Bombay High Court decision in the case of Dadasaheb
Rawal (supra) is dated 22nd August 2008. The Supreme Court decision
has not been considered by the Bombay High Court.
50 My final conclusions are drawn as under:
[a] A H.U.F. will not constitute an “association of individuals”
within the meaning of Section of 141 of the N.I. Act.
[b] A H.U.F. is not a legal entity distinct and separate from that
of the members who constitute it.
[c] The principles laid down by the Supreme Court in the case
of Aneeta Hada (supra) will not apply in the case of a H.U.F.
51 For the foregoing reasons, this application fails and is hereby

rejected. Notice stands discharged. The adinterim relief granted earlier
stands vacated forthwith.
(J.B.PARDIWALA, J.)
chandresh
Page 34 of 34

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R/SCR.

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

SPECIAL CRIMINAL APPLICATION (QUASHING) NO. 1970 of 2015

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE J.B.PARDIWALA

1 Whether Reporters of Local Papers may be allowed to

2 To be referred to the Reporter or not ?

4 Whether this case involves a substantial question of

CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA

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(B) Pending hearing and final disposal of this application, Your

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6 The learned counsel submits that a H.U.F. is included in the

7 The learned counsel, in support of his submissions, has placed

(1) Kapurchand Shrimal vs. Tax Recovery Officer, Hyderabad

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11 Mr. Davawala submits that the principles laid down by the

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A Hindu Undivided Family is an extended family arrangement

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The main points of differences between a partnership and H.U.F.

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21 The Supreme Court in Shiromani Gurdwara Prabandhak

"19. Thus, it is well settled and confirmed by the authorities on

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“138. Dishonour of cheque for insufficiency, etc., of funds in the

Provided that nothing contained in this sub­section shall render any

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(2) Notwithstanding anything contained in sub­section (1), where any

“3 (42) ”person” shall include any company or association or body of

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26 In the case at hand, the argument canvassed on behalf of the

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“22 The extent of land that could be held by the appellants depends

23 The word 'person' is defined in the Act, but it is an inclusive­

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26 We are fortified in this view by the decision of this Court in

"16. We do not find any fixed concept of "person" anywhere. No

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29 In South Gujarat Roofing Tiles Manufactures Association and

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31 The expression "Association of individuals" was considered by a

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33 Beaumont, C.J., in delivering judgment in Commissioner of

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"Jurisprudentially it is not correct to say that a co­owner of a

This Court also relied on the following passage from Salmond's

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40 In the case of Commissioner of Income Tax, Bombay North,

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legislature was to hit combinations of individuals who were engaged

Provided that nothing contained in this subsection shall render any

(2) Notwithstanding anything contained in subsection (1), where any

23 The word 'person' is defined in the Act, but it is an inclusive

"Jurisprudentially it is not correct to say that a coowner of a