2025 (6) TMI 1667 - HC - Indian Laws

Dishonour of Cheque - authority of director to file complaint on behalf of the company - failure to substantiate the facts that the cheque was issued in his favour in discharge of legally enforceable debt or liability - HELD THAT - It is an admitted fact that the complainant/Bimal Dey had filed complaint against the petitioner without any authorisation or power of attorney. Being a director of the company he needs authorisation or power of attorney to file or to initiate the proceeding under Section 138 of the N.I. Act as the agreement was executed between the petitioner s company and the company namely M/s. Aryavarat Mercentile Pvt. Ltd. In this regard the judgment relied upon by the petitioner passed in the case of A.C. Narayanan Vs. State of Maharashtra and Another 2013 (9) TMI 948 - SUPREME COURT is squarely applicable. In this case the Hon ble Supreme Court makes it clear that power of attorney holder cannot file a complaint in his own name as if he was the complainant. This Court is conscious of the fact that lack of authorisation is a curable defect in view of the decisions passed in M.M.T.C. Ltd. Vs. Medchl Chemicals and Pharma (P) Ltd. 2024 (12) TMI 1014 - SUPREME COURT where the Hon ble Supreme Court held that the only eligibility criteria prescribed by Section 142 of N.I. Act for maintaining a complaint under Section 138 of N.I. Act is that the complainant must be the payee or the holder in due course. However in the case of a company if the de-facto complainant did not have authority in the initial stage still the company can at any stage rectify the defect at a subsequent stage and the company can send a person who is competent to represent it. However in the present case no such steps were taken by the company/complainant to cure the defect. Even a power of attorney holder or authorised person can file and pursue a complaint on behalf of the principal and in the name of actual owner or person they represent and not in their personal name but here the complainant filed case in his individual capacity which is not permissible in law. Conclusion - This Court is of the view that both the Learned Courts below committed serious error while deciding the case. Therefore there is need to interfere with the concurrent findings of both the Learned Courts below. Revision application disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the complaint under Section 138 of the Negotiable Instruments Act (N.I. Act) was maintainable when the cheque was issued in discharge of a debt allegedly owed by a company, but the complaint was filed by an individual director without any authorization or power of attorney from the company.

- Whether the petitioner had issued the cheque in discharge of any legally enforceable debt or liability towards the complainant in his personal capacity.

- Whether the alteration in the agreement and the amount stated in the cheque raised doubts on the genuineness of the transaction and the existence of a subsisting debt.

- Whether the complainant's failure to produce authorization from the company to file the complaint vitiated the proceedings under Section 138 of the N.I. Act.

- Whether the courts below erred in convicting the petitioner without considering the absence of legally enforceable debt and the lack of authorization of the complainant to file the complaint.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability of complaint filed by individual director without authorization

Relevant legal framework and precedents: The N.I. Act requires that a complaint under Section 138 be filed by the payee or holder in due course of the cheque. When the payee is a company, the complaint must be filed by the company or by a person duly authorized to represent it. The Supreme Court in A.C. Narayanan v. State of Maharashtra and G. Kamalakar v. Surana Securities Limited clarified that a power-of-attorney holder or authorized person can initiate proceedings on behalf of the principal, but cannot file a complaint in his own name as if he were the complainant.

Court's interpretation and reasoning: The Court found that the complainant, though a director of the company, filed the complaint in his individual capacity without any authorization by way of Board resolution or power of attorney. The agreement was between two companies, not between the petitioner and the complainant personally. The Court held that this defect rendered the complaint not maintainable. The Court noted that while lack of authorization is a curable defect, no steps were taken by the complainant or company to cure this defect at any stage.

Key evidence and findings: The complainant admitted during evidence that he did not produce any Board resolution or authorization to file the complaint. The cheque was issued in the complainant's personal name, not in the name of the company, raising further doubts.

Application of law to facts: The Court applied the principle from A.C. Narayanan and related judgments, holding that the complaint filed by the director in his personal capacity without authorization was impermissible, and the courts below erred in ignoring this aspect.

Treatment of competing arguments: The petitioner's counsel argued the complaint was not maintainable due to lack of authorization; the lower courts failed to consider this. The Court accepted the petitioner's submissions and rejected the lower courts' approach.

Conclusion: The complaint under Section 138 of the N.I. Act was not maintainable as it was filed by an individual director without proper authorization from the company.

Issue 2: Existence of legally enforceable debt or liability towards the complainant personally

Relevant legal framework and precedents: Section 138 of the N.I. Act requires that the cheque be issued in discharge of a legally enforceable debt or liability. The Supreme Court in Indus Airways Pvt. Ltd. v. Magnum Aviation Pvt. Ltd. held that issuance of cheque as advance payment does not create criminal liability under Section 138 unless there is a subsisting debt or liability at the time of cheque issuance.

Court's interpretation and reasoning: The Court observed that the agreement was between two companies for dismantling and clearance work, with payment terms specified. The petitioner contended that he had paid Rs. 5,00,000/- as advance and the balance Rs. 3,75,000/- was payable before 50% completion of work. The cheque dated 29.06.2013 was for Rs. 4,40,000/-, which did not correspond with the agreed balance amount and was issued only three days after the agreement, before any work was performed.

Key evidence and findings: The agreement (Ext. 1) showed corrections in payment amounts, initialed by the director complainant, but no formal work order was issued and the contract was not executed. The complainant admitted in cross-examination that he could not specify when the cheque was received or when work was completed, and that the petitioner took away the valuable materials after demolition.

Application of law to facts: The Court applied the principle that a cheque issued before the debt or liability arises or before the due date of payment cannot be said to discharge a subsisting debt. The issuance of the cheque within three days of the agreement, when the second installment was payable only before 50% completion, defied logic and cast doubt on the genuineness of the transaction.

Treatment of competing arguments: The petitioner argued that no legally enforceable debt existed towards the complainant personally and that the cheque was issued as security to the company. The Court accepted this argument, noting the lack of evidence of a subsisting debt or liability towards the complainant individually.

Conclusion: There was no legally enforceable debt or liability towards the complainant in his personal capacity at the time of issuance of the cheque, thus the essential ingredient for offence under Section 138 was missing.

Issue 3: Validity and effect of alterations in the agreement and cheque amount

Relevant legal framework and precedents: Alterations in contracts and negotiable instruments without mutual consent can affect the enforceability and genuineness of claims under Section 138 of the N.I. Act.

Court's interpretation and reasoning: The Court noted that the agreement contained alterations in the payment schedule, with figures changed from Rs. 5,00,000/- to Rs. 4,35,000/- and Rs. 3,75,000/- to Rs. 4,40,000/-, initialed only by the complainant director. The petitioner denied knowledge of these alterations and no work order was issued. The Court found these facts suspicious and indicative of foul play by the complainant.

Key evidence and findings: The petitioner's testimony and the documentary evidence showed the alterations were unilateral and unexplained. The complainant failed to prove that these changes were communicated or consented to by the petitioner.

Application of law to facts: The Court held that such unilateral alterations without consent undermine the legitimacy of the debt claim and the cheque amount, thereby weakening the prosecution's case under Section 138.

Treatment of competing arguments: The petitioner contended the alterations were baseless and done without his consent; the complainant failed to rebut this effectively.

Conclusion: The alterations in the agreement and the cheque amount cast serious doubts on the genuineness of the transaction and the existence of a subsisting debt.

Issue 4: Treatment of lack of authorization as a curable defect

Relevant legal framework and precedents: The Supreme Court in M.M.T.C. Ltd. v. Medchl Chemicals and Pharma (P) Ltd. held that lack of authorization to file complaint under Section 138 is a curable defect, and the company can rectify it at any stage by sending a competent representative.

Court's interpretation and reasoning: The Court acknowledged this principle but observed that in the present case, no attempt was made by the complainant or company to cure the defect by authorizing the complainant or appointing a proper representative. The complaint remained filed by the individual director without authority throughout the proceedings.

Key evidence and findings: No Board resolution or power of attorney was produced at any stage to cure the defect.

Application of law to facts: The Court held that failure to cure the defect rendered the complaint and subsequent proceedings invalid.

Treatment of competing arguments: The petitioner argued that the defect was not cured; the Court agreed and rejected any suggestion that the defect could be overlooked.

Conclusion: The lack of authorization was not cured and thus vitiated the proceedings.

3. SIGNIFICANT HOLDINGS

"The complaint under Section 138 of the Negotiable Instruments Act filed by a director of the company in his individual capacity, without any authorization by way of Board resolution or power of attorney from the company, is not maintainable."

"The essential ingredient of Section 138 of the Negotiable Instruments Act is that the cheque must be issued in discharge of a legally enforceable debt or liability subsisting at the time of issuance. A cheque issued before the debt arises or before the due date of payment cannot sustain a conviction."

"Unilateral alterations in the terms of the agreement and the cheque amount, without the knowledge or consent of the drawer, cast serious doubt on the genuineness of the transaction and the existence of a subsisting debt."

"Lack of authorization to file a complaint under Section 138 of the Negotiable Instruments Act is a curable defect, but if no steps are taken to cure the defect at any stage, the complaint and proceedings are liable to be quashed."

"The Courts below committed serious error in convicting the petitioner without considering the absence of legally enforceable debt towards the complainant personally and the lack of authorization of the complainant to file the complaint."

Final determination: The revisional Court allowed the Criminal Revisional application, set aside the conviction and sentence imposed by the Trial Court and the Appellate Court, and quashed the complaint and proceedings under Section 138 of the N.I. Act.