A two-judge Bench of Justice SK Kaul and Justice MM Sundresh has rejected an argument that not mentioning the company's name first in the cause title of the Complaint under the Negotiable Instruments Act, 1881 or not elaborating on the authorisation of the official filing the Complaint on behalf of the company would be fatal to the Complaint.
The Court has held that, "There could be a format where the Company's name is described first, suing through the Managing Director but there cannot be a fundamental defect merely because the name of the Managing Director is stated first followed by the post held in the Company".
The Court has also held that it is either the Manager or the Managing Director who is the in-charge of the affairs of the company for its day-to-day management and within the activity would certainly be calling the act of approaching the court either under civil law or criminal law for setting the trial in motion.
An appeal was preferred against the judgment of the High Court which had dismissed the appeal of the Appellant-Complainant on the grounds – i) Complaint was not filed by the payee or holder of the cheque in due course under Section 142 of the NI Act, ii) Complaint was not filed by the company but by the Appellant who was the Managing Director of the company, iii) a conscious choice was made to not file the complaint in the name of the Company as it was unclear whether the Company was authorized to advance loans.
In this case, the Respondent had issued 8 cheques of Rs. 20,000 each in favor of the Company to repay the loan. All the cheques were dishonored on account of funds insufficient. A legal notice was issued against the Respondent however, he did not respond to it and the demand was also not met within the time period.
This was followed by a Complaint being filed by the Managing Director of the Company before the Special Metropolitan Magistrate. The Complaint was accompanied by a board resolution of the Company authorizing the MD to initiate legal action against the Respondent on behalf of the Company.
The description of the Complainant in the Complaint was as follows:-
"Mr. Bhupesh M. Rathod
Managing Director of M/s. Bell
Marshall Telesystems Ltd.
Aged: 41 years, Occupation: Business
Having address at 1107, V Maker
Chamber, Nariman Point
The Trial Court acquitted the Respondent and the Complainant's Appeal before the High Court was dismissed. The High Court held that it was the Appellant who had filed the Complaint and not the company, which was the holder of the cheque in due course.
The Appellant contended before the Apex Court that a highly technical view of the matter had been taken by the High Court, which related only to the format of the Complaint and not the substance.
The Appellant also contended that a duly signed cheque was sufficient to raise a presumption under Section 139 of the NI Act against the Respondent. It was not the say of the respondent in defence that the cheque was not signed by him or was signed under any fraud or misrepresentation, the Appellant argued.
While the Respondent contended that the Complaint was not in proper form and it did not lead to a conclusion that the Complaint was filed on behalf of the company. It was further argued that no loan was advanced by the Company to the Respondent.
Counsel Mr. Ajay Pal appeared for the Appellant while Counsel Mr. V.K. Sidharthan and Counsel Mr. Sachin Patil appeared for the Respondent during the proceedings before the Court.
The Apex Court after considering the contentions of the parties at length held as follows–
i) Sections 138, 139, and 142(1)(a) of the NI Act
The Bench held that the Respondent did not dispute his signatures on the cheque hence, it was for him to prove in what circumstances the cheque had been issued, i.e., why was it not a cheque issued in due course.
"The words of Section 139 of the NI Act are quite clear that unless the contrary is proved, it shall be presumed that the holder of the 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," opined the Court.
Further, the Court asserted, "The respondent has not set up a case that the nature of transaction was of the nature which fell beyond the scope of Section 138."
The Court further held, "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."
ii) Plea of Competent Complainant
The Court referred to the precedent Associated Cement Co. Ltd. v. Keshavanand and held, "If a complaint was made in the name of the Company, it is necessary that a natural person represents such juristic person in the court and the court looks upon the natural person for all practical purposes."
Also, the Court observed that body corporate is a de jure Complainant while the human being is the de facto Complainant to represent the former in Court proceedings.
Additionally, the Court opined that there could not fundamental defect merely because the name of the MD was stated first followed by the post held in the Company.
"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," the Bench noted.
iii) Authorization of the Managing Director
The Court held that the authorisation of the Managing Director produced during the trial, a copy of the board resolution, was not required to be signed by the Board Members since it would form a part of the minutes of the board meeting and not a true copy of the authorization.
The Court further opined, "We also feel that it has been wrongly concluded that the Managing Director was not authorised. If we peruse the authorisation in the form of a certified copy of the Resolution, it states that legal action has to be taken against the respondent for dishonour of cheques issued by him to discharge his liabilities to the Company."
The Bench observed that the format of the complaint cannot itself be defective though it may not be perfect.
iv) Technical Plea of the Respondent
"The respondent only sought to take a technical plea arising from the format of the complaint to evade his liability. There was no requirement of a loan agreement to be executed separately as any alternative nature of transaction was never stated," observed the Court
In the light of these observations, the Court allowed the appeal and set aside the impugned judgment of the High Court and held that the Complaint was filed properly and the Respondent failed to disclose why he did not meet the financial liability arising to a payee, who is the holder of the cheque in due course.
The Court sentenced the Respondent to one year of imprisonment and a fine of twice the amount of dishonored cheques i.e., Rs. 3,20,000, with a direction that if the Respondent paid Rs. 1,60,000 as an additional amount, the sentence would stand suspended. The Appellant would be entitled to costs, the Bench held.