Body of complaint,u/s 138 of NI Act,not elaborating upon authorisation, can’t be seen as fundamental defect to discard same: SC

Read Judgment: Bhupesh Rathod vs. Dayashankar Prasad Chaurasia & Anr

Pankaj Bajpai

New Delhi, November 11, 2021: The Supreme Court has opined that as per Section 139 of the Negotiable Instruments Act, 1881, 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.

A Division Bench of Justice Sanjay Kishan Kaul and Justice M.M. Sundresh observed that only eligibility criteria prescribed u/s 142(1)(a) is that the complaint must be by the payee or the holder in due course.

The background of the case was that a sum of Rs.1,60,000 was advanced to Dayashankar Prasad Chaurasia (respondent) by the Company and the cheques were issued to repay the loan. 

The respondent took an objection that the complaint was filed in the personal capacity of Mr. Bhupesh Rathod (appellant) and not on behalf of the Company. While on the other hand it was contended by the appellant 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. 

After considering the arguments, the Division Bench therefore said 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. 

Quoting the decision of this Court in Associated Cement Co. Ltd. v. Keshavanand , the Division Bench reiterated that 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. 

The High Court has embarked on a discussion as to the vagueness of the identity of the complainant and its relation with the legality of a loan which may be granted by the Company, something that was not required to be gone into, clarified the Bench. 

“It is quite apparent that the Managing Director has filed the complaint on behalf of the Company. 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”, observed the Apex Court.

The Top Court found that neither the signatures on the cheques were denied, nor was it explained by way of an alternative story as to why the duly signed cheques were handed over to the Company. 

The Apex Court therefore stated that 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 authorization, and that the artificial person being the Company had to act through a person/official, which logically would include the Chairman or Managing Director. 

Accordingly, the Top Court allowed the appeal and concluded that that the complaint was properly instituted and the respondent failed to disclose why he did not meet the financial liability arising to a payee, who is a holder of a cheque in due course.