Supreme Court Clarifies Complaint Filing in Cheque Dishonor Cases: Bhupesh Rathod vs. Dayashankar Prasad Chaurasia (2021)

Date of the Judgment: November 10, 2021

Citation: CRIMINAL APPEAL NO.1105 OF 2021

Judges: Sanjay Kishan Kaul, J. and M.M. Sundresh, J.

Can a complaint filed under Section 138 of the Negotiable Instruments Act, 1881 be dismissed merely because the Managing Director of the company is named as the complainant instead of the company itself? The Supreme Court addressed this question in a recent judgment, clarifying the requirements for filing complaints in cheque dishonor cases. This case revolves around a complaint filed by the Managing Director of a company for dishonor of cheques, where the respondent argued that the complaint was not filed by the company itself, but by the Managing Director in his personal capacity. The Supreme Court bench, comprising Justices Sanjay Kishan Kaul and M.M. Sundresh, delivered the judgment.

Case Background

The case began when Dayashankar Prasad Chaurasia (the respondent) issued eight cheques, each for ₹20,000, totaling ₹1,60,000, to M/s. Bell Marshall Telesystems Limited (the Company). These cheques, drawn on HDFC Bank, were presented for payment on May 10, 2006, but were dishonored due to insufficient funds. Following the dishonor, the Company issued legal notices on May 26, 2006, as required under Section 138(b) of the Negotiable Instruments Act, 1881. When the respondent failed to make the payment within fifteen days of receiving the notice, Mr. Bhupesh Rathod, the Managing Director of the Company, filed a complaint on July 7, 2006, before the Special Metropolitan Magistrate, Mumbai. This complaint was supported by a Board Resolution dated May 17, 2006, authorizing Mr. Rathod to initiate legal action on behalf of the Company. The respondent contended that the complaint was filed in the personal capacity of Mr. Bhupesh Rathod and not on behalf of the Company. The appellant, on the other hand, contended that the complaint was in the name of the Company and in the cause title of the complaint, he had described himself as the Managing Director.

Timeline

Course of Proceedings

The trial court acquitted the respondent on March 12, 2009, citing two reasons: first, there was no document to prove the loan except the promissory note signed by the respondent, and second, the Board Resolution was not signed by the Board of Directors. The appellant then appealed to the High Court, which dismissed the appeal on August 3, 2015. The High Court reasoned that the complaint was not filed by the payee (the Company) or a holder in due course, as required by Section 142(a) of the NI Act. The High Court also noted that the complaint was filed by Mr. Rathod, who had described himself as the Managing Director only in the cause title of the complaint. The High Court further speculated that the Company might have intentionally avoided filing the complaint in its own name due to concerns about its authority to grant loans. However, the High Court did acknowledge that the demand notice was sent on behalf of the Company. The High Court did not agree with the trial court that the Board Resolution was not signed by the Board of Directors.

Legal Framework

The judgment primarily revolves around the interpretation of several sections of the Negotiable Instruments Act, 1881.
✓ Section 138 of the NI Act defines the offense of dishonor of a cheque for insufficiency of funds. It states that if a cheque is returned unpaid due to insufficient funds, the drawer is deemed to have committed an offense, provided certain conditions are met. These conditions include presenting the cheque within a specified period, issuing a demand notice to the drawer within 30 days of receiving the dishonor information, and the drawer failing to make the payment within fifteen days of receiving the notice.

✓ Section 139 of the NI Act establishes a presumption in favor of the holder of a cheque. It states that unless proven otherwise, it is presumed that the holder received the cheque for the discharge of a debt or other liability.

✓ Section 118 of the NI Act outlines presumptions regarding negotiable instruments, including the presumption that the holder is a holder in due course.

✓ Section 142 of the NI Act specifies the conditions for taking cognizance of offenses under Section 138. It states that no court can take cognizance of such an offense except upon a written complaint by the payee or the holder in due course.

The relevant provisions are 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 term which may be extended to two years], or with fine which may extend to twice the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply unless–
(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice; in writing, to the drawer of the cheque, [within thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.”

“139. Presumption in favour of holder.— It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or other liability.”

“118. Presumptions as to negotiable instruments.— Until the contrary is proved, the following presumptions shall be made: —
(g) that holder is a holder in due course:— that the holder of a negotiable instrument is a holder in due course : provided that, where the instrument has been obtained from its lawful owner, or from any person in lawful custody thereof, by means of an offence or fraud, or has been obtained from the maker or acceptor thereof by means of an offence or fraud, or for unlawful consideration, the burden of proving that the holder is a holder in due course lies upon him.”

“142. Cognizance of offences.— Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), —
(a) no court shall take cognizance of any offence punishable under section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque;
(b) such complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to section 138:
[Provided that the cognizance of a complaint may be taken by the Court after the prescribed period, if the complainant satisfies the Court that he had sufficient cause for not making a complaint within such period;]
(c) no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under section 138.”

Arguments

Appellant’s Submissions:

• The appellant argued that the complaint was filed on behalf of the Company, as evident from the cause title, which is an integral part of the complaint. The cause title described Mr. Bhupesh Rathod as the Managing Director of M/s. Bell Marshall Telesystems Ltd.
• The Board Resolution, authorizing the Managing Director to file the complaint, was annexed to the complaint, further indicating that the complaint was filed on behalf of the Company.
• The address given in the complaint was that of the Company’s registered office.
• An affidavit filed during cross-examination clarified that the complaint was filed by Mr. Rathod in his capacity as the Managing Director of the Company.
• The appellant relied on the presumptions under Section 139 and 118 of the NI Act, arguing that the respondent had not rebutted these presumptions.
• The appellant cited the case of Triyambak S. Hegde v. Sripad to support the argument that a duly signed cheque is sufficient to raise a presumption under Section 139 of the NI Act.
• The appellant contended that the lower courts had taken a hyper-technical view of the matter, focusing on the format of the complaint rather than its substance.
• The trial court had accepted that the complaint was filed on behalf of the Company, as it would have otherwise refused to take cognizance under Section 142(a) of the NI Act.
• The respondent had not challenged the summoning order on the ground that the complaint was not filed on behalf of the Company.

Respondent’s Submissions:

• The respondent argued that the appellant had failed to prove his case beyond reasonable doubt and that the complaint was not in a proper form.
• The complaint and the Board Resolution did not establish that the complaint was filed on behalf of the Company.
• The Board Resolution was not signed by the Directors of the Company and did not explicitly authorize the complainant to file the complaint.
• The respondent contended that no loan was advanced by the Company and that it was not proven to whose account the alleged loan was advanced.
• No loan agreement in favor of the Company was placed on record.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court considered the following issue:

✓ Whether the complaint filed by Mr. Bhupesh Rathod, describing himself as the Managing Director of M/s. Bell Marshall Telesystems Ltd., is a valid complaint under Section 142(a) of the Negotiable Instruments Act, 1881, when the loan was advanced by the Company and the complaint was not explicitly filed in the name of the Company?

Treatment of the Issue by the Court

Authorities

The Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court relied on Associated Cement Co. Ltd. v. Keshavanand [(1998) 1 SCC 687]* to clarify that a natural person represents a juristic person in court, and a company can rectify any defect in authorization at any stage.
• The Supreme Court referred to M.M.T.C. Ltd. & Anr. v. Medchl Chemicals and Pharma (P) Ltd. & Anr. [(2002) 1 SCC 234]* to support the principle that a company can be represented by a natural person in court proceedings.
• The Supreme Court cited Credential Finance Ltd. v. State of Maharashtra [1998(3) Mh.L.J. 805]* to support the view that a Manager or Managing Director can be considered the person in-charge of the affairs of the Company for its day-to-day management, including initiating legal proceedings.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The respondent did not dispute his signatures on the cheques.
• The respondent did not provide any alternative explanation as to why the cheques were handed over to the Company.
• The court found that the complaint was filed on behalf of the Company, as the Managing Director was acting on behalf of the Company and the Board Resolution authorized him to do so.
• The court emphasized that the respondent was trying to evade his liability by taking a technical plea arising from the format of the complaint.

Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio:

The court’s reasoning was a combination of factual considerations (such as the respondent’s failure to dispute the signatures and provide an alternative explanation) and legal considerations (such as the interpretation of Section 138 and 142 of the NI Act). The factual aspects weighed more heavily in the court’s decision.

Logical Reasoning Flowchart:

The court considered the submissions of the parties and the evidence on record. The court reasoned that the complaint was filed on behalf of the Company, as the Managing Director was acting on behalf of the Company and the Board Resolution authorized him to do so. The court also observed that the respondent did not dispute his signature on the cheques and did not provide an alternative explanation for issuing the cheques. The court rejected the technical objections raised by the respondent and held that the complaint was validly instituted.

The court observed that the lower courts had taken a hyper-technical view of the matter and that the substance of the complaint should have been considered. The court also noted that the respondent was trying to evade his liability by taking a technical plea arising from the format of the complaint.

The Supreme Court stated, “We must say at the inception that the respondent not having disputed his signatures on the cheques, it was for the respondent to show in what circumstances the cheques had been issued, i.e., why was it not a cheque issued in due course.”

The Supreme Court further stated, “The only eligibility criteria prescribed under Section 142(1)(a) is that the complaint must be by the payee or the holder in due course.”

The Supreme Court also stated, “It would be too technical a view to take to defeat the complaint merely because the body of the complaint does not elaborate upon the authorisation. The artificial person being the Company had to act through a person/official, which logically would include the Chairman or Managing Director. Only the existence of authorisation could be verified.”

Key Takeaways

• A complaint filed under Section 138 of the Negotiable Instruments Act, 1881, by the Managing Director of a company is valid if it is clear that the Managing Director is acting on behalf of the company.
• The format of the complaint is not as important as the substance of the complaint. A hyper-technical view of the matter should not be taken to defeat a complaint.
• The presumptions under Section 139 and 118 of the NI Act are strong and must be rebutted by the respondent.
• The burden of proof is on the respondent to show that the cheque was not issued in due course.

Directions

The Supreme Court directed that the respondent should be sentenced with imprisonment for a term of one year and with a fine twice the amount of the cheque, i.e., ₹3,20,000. However, in view of the passage of time, the court provided that if the respondent pays a further sum of ₹1,60,000 to the appellant within two months, then the sentence would stand suspended. The appellant was also entitled to costs.

Specific Amendments Analysis

There is no discussion on specific amendments in the judgment.

Development of Law

The ratio decidendi of this case is that a complaint filed under Section 138 of the Negotiable Instruments Act, 1881, by the Managing Director of a company is valid if it is clear that the Managing Director is acting on behalf of the company. The court emphasized that the substance of the complaint should be considered over its format. This judgment reinforces the principle that technicalities should not be used to defeat the purpose of law, especially in cases of cheque dishonor.

Conclusion

In conclusion, the Supreme Court allowed the appeal, setting aside the orders of the trial court and the High Court. The court held that the complaint was properly instituted by the Managing Director on behalf of the Company. The court emphasized that the respondent failed to provide any reasonable explanation for the dishonor of the cheques and was trying to evade his liability by taking a technical plea. The Supreme Court underscored the importance of substance over form in legal proceedings, particularly in cases involving the Negotiable Instruments Act, 1881.