Supreme Court Upholds Complaint Filed by Manager in Cheque Dishonor Case: M/S Naresh Potteries vs. M/S Aarti Industries (2025) INSC 1

Date of the Judgment: January 2, 2025
Citation: (2025) INSC 1
Judges: B.R. Gavai, J., K. V. Viswanathan, J.
Can a company’s manager, authorized by a power of attorney, file a cheque dishonor complaint under Section 138 of the Negotiable Instruments Act, 1881? The Supreme Court of India recently addressed this question. The court clarified that a manager with knowledge of the transaction can file a complaint on behalf of the company. This judgment settles the issue of who can represent a company in such cases. The bench comprised Justices B.R. Gavai and K. V. Viswanathan, who delivered a unanimous decision.

Case Background

M/s Naresh Potteries, the appellant, manufactures and sells crockeries and insulators. Between June 18, 2021, and July 2, 2021, M/s Aarti Industries purchased scrap material worth ₹1,70,46,314 from Naresh Potteries. After the supply, Naresh Potteries raised invoices for payment. On July 12, 2021, Aarti Industries issued a cheque for ₹1,70,46,314 to Naresh Potteries. The cheque, dated July 10, 2021, was drawn on Central Bank of India, Khurja.

Naresh Potteries deposited the cheque on the same day. However, the cheque was dishonored on July 13, 2021, with the reason “exceeds arrangement”. Subsequently, on July 15, 2021, Naresh Potteries issued a legal notice to Aarti Industries, demanding payment within 15 days. In response, on July 16, 2021, the son of the proprietor of Aarti Industries filed a First Information Report (FIR) alleging forgery against Naresh Potteries and others.

On August 31, 2021, the proprietor of Naresh Potteries authorized Neeraj Kumar, the manager, to file a complaint regarding the dishonored cheque. Consequently, Neeraj Kumar filed a complaint under Section 138 of the Negotiable Instruments Act, 1881, on September 8, 2021. He also filed an affidavit stating his familiarity with the facts. On October 22, 2021, Neeraj Kumar filed an affidavit of evidence. The trial court issued summons to Aarti Industries on November 22, 2021. Aggrieved, Aarti Industries filed a petition to quash the summons, which was allowed by the High Court. This led to the present appeal before the Supreme Court.

Timeline

Course of Proceedings

The trial court, based on the evidence and examination under Section 200 of the Code of Criminal Procedure, 1973 (Cr.P.C.), found sufficient grounds to issue summons to Sunita Devi, the proprietor of M/s Aarti Industries, for the offense under Section 138 of the Negotiable Instruments Act, 1881. Aggrieved by this, M/s Aarti Industries filed a Criminal Miscellaneous Application under Section 482 of the Cr.P.C. to quash the summoning order and the entire proceedings before the trial court. The High Court of Judicature at Allahabad allowed this application, leading to the present appeal before the Supreme Court.

Legal Framework

The key legal provision in this case is Section 142 of the Negotiable Instruments Act, 1881, which states:

“142. Cognizance of offences .—(1) 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;”

This section specifies that a court can only take cognizance of an offense under Section 138 of the Negotiable Instruments Act, 1881, when a written complaint is made by the payee or the holder in due course of the cheque. Additionally, Section 200 of the Cr.P.C. requires the Magistrate to examine the complainant and witnesses before taking cognizance of an offense. However, Section 142 of the Negotiable Instruments Act, 1881, creates a specific bar, requiring a written complaint by the payee or holder in due course.

Arguments

The appellant, M/s Naresh Potteries, argued that the High Court incorrectly quashed the complaint. They submitted that the High Court misinterpreted the law and the facts of the case. The appellant contended that the manager, Neeraj Kumar, had personal knowledge of the transaction. They also argued that the purpose of a sworn statement under Section 200 of the Cr.P.C. is to establish the prima facie existence of an offense. The final outcome of the trial would depend on the evidence. The appellant highlighted that Neeraj Kumar had stated on three occasions that he had personal knowledge of the facts.

The appellant relied on several judgments, including Shankar Finance and Investments v. State of Andhra Pradesh and Ors. [(2008) 8 SCC 536], Praveen v. Mohd. Tajuddin [(2009) 12 SCC 706], A.C. Narayanan v. State of Maharashtra and Another [(2014) 11 SCC 790], and Vinita S. Rao v. Essen Corporate Services Private Limited and Another [(2015) 1 SCC 527]. The appellant argued that, based on these authorities, the appeal should be allowed.

Respondent No. 2, supporting the appellant, submitted that the matter was essentially a dispute between private parties. They adopted the appellant’s submissions and requested that the appeal be allowed. Respondent No. 1 did not appear despite being served.

Submissions of the Parties

Issues Framed by the Supreme Court

The Supreme Court framed the central issue as:

Whether the complaint filed by the appellant under Section 138 of the Negotiable Instruments Act, 1881, is in accordance with the requirement under Section 142 of the same Act.

Treatment of the Issue by the Court

Authorities

The Supreme Court relied on several cases and legal provisions to reach its decision:

• National Small Industries Corporation Limited v. State (NCT of Delhi) and Others [(2009) 1 SCC 407] – Supreme Court: This case clarified who can be considered the complainant when a company files a complaint under Section 138 of the Negotiable Instruments Act, 1881.
• A.C. Narayanan v. State of Maharashtra and Another [(2014) 11 SCC 790] – Supreme Court: This case discussed the maintainability of a complaint under Section 138 of the Negotiable Instruments Act, 1881, filed by a power of attorney holder.
• TRL Krosaki Refractories Limited v. SMS Asia Private Limited and Another [(2022) 7 SCC 612] – Supreme Court: This case dealt with similar facts and clarified that a complaint filed by an authorized employee of a company is valid if they have knowledge of the transaction.
• Shankar Finance and Investments v. State of Andhra Pradesh and Ors. [(2008) 8 SCC 536] – Supreme Court: Cited in support of the appellant’s arguments.
• Praveen v. Mohd. Tajuddin [(2009) 12 SCC 706] – Supreme Court: Cited in support of the appellant’s arguments.
• Vinita S. Rao v. Essen Corporate Services Private Limited and Another [(2015) 1 SCC 527] – Supreme Court: Cited in support of the appellant’s arguments.
• Samrat Shipping Co. (P) Ltd. v. Dolly George [(2002) 9 SCC 455] – Supreme Court: This case held that a company can file a complaint through a human agency and the person presenting the complaint is the authorized representative.
• Section 138 of the Negotiable Instruments Act, 1881: Deals with the offense of dishonor of cheque.
• Section 142 of the Negotiable Instruments Act, 1881: Specifies who can file a complaint under Section 138.
• Section 200 of the Code of Criminal Procedure, 1973: Requires the Magistrate to examine the complainant before taking cognizance.
• Section 482 of the Code of Criminal Procedure, 1973: Deals with the inherent powers of the High Court.

Authorities Considered by the Court

Judgment

The Supreme Court allowed the appeal, setting aside the High Court’s judgment. The court held that the complaint filed by M/s Naresh Potteries through its manager, Neeraj Kumar, was valid. The court emphasized that the complaint was filed in the name of the payee, M/s Naresh Potteries. The court also noted that Neeraj Kumar, as the manager, was authorized to represent the company and had personal knowledge of the transaction.

Treatment of Submissions by the Court

How Authorities Were Viewed by the Court

The Supreme Court relied on National Small Industries Corporation Limited v. State (NCT of Delhi) and Others [(2009) 1 SCC 407] to establish that a company can be represented by an authorized employee. However, the court distinguished A.C. Narayanan v. State of Maharashtra and Another [(2014) 11 SCC 790], clarifying that it applied to power of attorney holders of individuals, not companies. The court followed TRL Krosaki Refractories Limited v. SMS Asia Private Limited and Another [(2022) 7 SCC 612], which held that an authorized employee with knowledge can represent a company in a complaint under Section 138 of the Negotiable Instruments Act, 1881. The Court also relied on Samrat Shipping Co. (P) Ltd. v. Dolly George [(2002) 9 SCC 455], which held that a company can file a complaint through a human agency.

What Weighed in the Mind of the Court?

The Supreme Court’s decision was primarily influenced by the fact that the complaint was filed in the name of the payee, M/s Naresh Potteries, and that Neeraj Kumar, the manager, was authorized to represent the company. The court emphasized that Neeraj Kumar had personal knowledge of the transaction, as demonstrated in the Letter of Authority, the affidavit in support of the complaint, and the affidavit of evidence under Section 200 of the Cr.P.C. The court also noted that the High Court had incorrectly applied the principles from A.C. Narayanan v. State of Maharashtra and Another [(2014) 11 SCC 790], which dealt with power of attorney holders of individuals, not companies.

The court’s reasoning also focused on the practical aspects of corporate representation. It clarified that when a company is the payee, an authorized employee with knowledge can represent the company. The court highlighted that the purpose of the sworn statement under Section 200 Cr.P.C. is to establish a prima facie case, and the trial court can call the complainant for examination and cross-examination if necessary. The court cautioned against quashing complaints at the threshold, especially when issues of authorization and knowledge can be determined during the trial.

Sentiment Analysis of Reasons

Fact:Law Ratio

Logical Reasoning

The Court considered the fact that M/s Naresh Potteries was the payee and that Neeraj Kumar was authorized and had knowledge of the transaction. The court distinguished the facts from A.C. Narayanan case and held that the complaint was valid.

The Supreme Court emphasized that the complaint was filed in the name of the payee, M/s Naresh Potteries. The court also highlighted that Neeraj Kumar was authorized to represent the company and had personal knowledge of the transactions. The court noted that the High Court had incorrectly applied the principles from A.C. Narayanan, which dealt with power of attorney holders of individuals, not companies. The court’s decision was also influenced by the practical aspects of corporate representation and the need to avoid quashing complaints at the threshold.

The court quoted from the judgment:

“The employment of the terms “specific assertion as to the knowledge of the power -of-attorney holder” and such assertion about knowledge should be “said explicitly” as stated in A.C. Narayanan [A.C. Narayanan v. State of Maharashtra, (2014) 11 SCC 790 : (2014) 4 SCC (Civ) 343] cannot be understood to mean that the assertion should be in any particular manner, much less only in the manner understood by the accused in the case.”

“All that is necessary is to demonstrate before the learned Magistrate that the complaint filed is in the name of the “payee” and if the person who is prosecuting the complaint is different from the payee, the authorisation therefor and that the contents of the complaint are within his knowledge.”

“When, the complainant/payee is a company, an authorised employee can represent the company. Such averment and prima facie material is sufficient for the learned Magistrate to take cognizance and issue process.”

The Supreme Court’s decision was unanimous, with both Justices B.R. Gavai and K. V. Viswanathan agreeing on the judgment.

Key Takeaways

• ✓ A company can file a complaint under Section 138 of the Negotiable Instruments Act, 1881, through an authorized employee who has knowledge of the transaction.
• ✓ The complaint must be filed in the name of the payee company.
• ✓ The authorized employee’s knowledge of the transaction must be evident in the complaint and supporting documents.
• ✓ High Courts should exercise caution when using inherent powers under Section 482 of the Cr.P.C. to quash complaints at the threshold.
• ✓ Issues of authorization and knowledge should generally be determined during the trial.

Directions

The Supreme Court directed that Complaint No. 701 of 2021 be restored to the file of the Additional Chief Judicial Magistrate, Khurja, Bulandshahar, to be heard and decided on its own merits.

Development of Law

The ratio decidendi of this case is that a company can file a complaint under Section 138 of the Negotiable Instruments Act, 1881, through an authorized employee who has knowledge of the transaction. This judgment clarifies the position of law regarding corporate representation in cheque dishonor cases, distinguishing it from cases involving individual power of attorney holders. This ruling reinforces the principle that complaints should not be dismissed at the threshold if there is prima facie evidence of authorization and knowledge, and that such issues should be addressed during the trial.

Conclusion

The Supreme Court allowed the appeal, setting aside the High Court’s decision. The court held that the complaint filed by M/s Naresh Potteries through its manager, Neeraj Kumar, was valid. The court emphasized that the complaint was filed in the name of the payee and that Neeraj Kumar had the necessary authorization and knowledge. This judgment clarifies the legal position on corporate representation in cheque dishonor cases and reinforces the importance of allowing cases to proceed to trial when there is prima facie evidence of an offense.