10 Landmark Judgments on NI Act

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judgments-on-ni-act

Ingredients of the Offences under Section 138

Title of the Case – Jurisdiction of a Complaint in Cheque Bounce

Name of the case – Dashrath Rupsingh Rathod vs. State of Maharashtra & Anr., Crl.A.
No. 2287 of 2009 (Supreme Court)

Date of Judgment – 01st Aug 2014

Judges: Justice T S Thakur, Justice Vikramajit Sen, Justice C. Nagappan

Subject and sections involved – Section 138 of Negotiable Instruments Act, 1881

Issue:

1. Whether the case has to be initiated at the place where the branch of the bank on
which the cheque was drawn is located?

Fact of the Case:

The case raise a legal nodus of substantial public importance pertaining to Court’s territorial
jurisdiction concerning criminal complaints filed under Chapter XVII of the Negotiable
Instruments Act, 1881. This is amply adumbrated by the Orders of the three-Judge Bench
presided over by the then Hon’ble the Chief Justice of India, Hon’ble Mr. Justice V.S.
Sirpurkar and Hon’ble Mr. Justice P. Sathasivam which SLP is also concerned with the
interpretation of Section 138 of the NI Act, and wherein the Bench after issuing notice on the
petition directed that it be posted before the three-Judge Bench.
Ratio of the Case:

The Supreme Court held that u/s 138 of Negotiable Instruments Act which is to prosecute a
person who had presented the cheque which had been returned due to insufficiency of funds
or if the amount exceeds the amount in the bank of the payer.

Earlier, a case under Section 138 could be initiated by the holder of the cheque at his place of
business or residence. But, a bench of justices TS Thakur, Vikramjit Sen and C Nagappan
ruled that the case has to be initiated at the place where the branch of the bank on which the
cheque was drawn is located.

And the judgment would apply retrospectively. This means, lakhs of cases pending in various
courts across the country would witness a interstate transfer of cheque bouncing cases.

The bench said: “In this analysis, we hold that the place, situs or venue of judicial inquiry and
trial of the offence must logically be restricted to where the drawee bank is located.”

Ingredients of the Offences under Section 138

The ingredients of the offence under Section 138 are:

(a)  cheque is drawn by the accused on an account maintained by him with a banker;

(b)  the cheque amount is in discharge of a debt or liability; and

(c)   the cheque is returned unpaid for insufficiency of funds or that the amount exceeds the
arrangement made with the bank, the offence standing committed the moment the cheque is
returned unpaid.

Further steps laid down by way of the proviso are distinct from the ingredients of the offence
which the enacting provision creates and makes punishable. Thus, an offence within the
contemplation of Section 138 is complete with the dishonour of the cheque but taking
cognizance of the same by any court is forbidden so long as the complainant does not have
the cause of action to file a complaint in terms of clause (c) of the proviso read with Section
142. 
 2

Title of the Case – Conditions precedent for constituting an offence under S. 138

Name of the case – Msr Leathers vs. S. Palaniappan & anr., (2013) 1 SCC 177, Crl.A.
Nos. 2661-64 of 2002 (Supreme Court)

Date of Judgment – 10th Sept 2013

Judges: Justice K.S. Radhakrishnan & Justice Pinaki Chandra Ghose

Subject and sections involved – Section 138 of Negotiable Instruments Act, 1881

Issue:

1. Whether precedent laid down in Sadanandan Bhadran’s Case is relevant?

2. Whether prosecution based on second or successive dishonour of the cheque is right?

Fact of the Case:

The cheques presented by respondent to appellant were returned by the Bank with an
endorsement “not arranged funds for”. At the request of the respondent, the appellant did not
present the said cheques since the respondent agreed to settle the dispute. However, the
respondent failed to settle the dispute subsequently. In these circumstances, on 8th January,
1997, the appellant sent a notice (to the respondent) under section 138(b) of the Negotiable
Instruments Act, 1881 (hereinafter referred to as ‘the Act’). The respondent duly received the
said notice. Subsequent thereto, those cheques were again presented before the Bank on 21st
January, 1997 by the appellant. On presentation, the said cheques were dishonoured for want
of sufficient funds.

Ratio of the Case:

The Supreme Court overruled the decision in Sadanandan Bhadran vs. Madhavan Sunil
Kumar [1998 (6) SCC 514] and held that the prosecution based on second or successive
dishonour of the cheque is also permissible so long as it satisfies the requirements stipulated
under the proviso to Section 138 of the Act.

There are three distinct conditions precedent, which must be satisfied before the dishonour of
a cheque can constitute an offence and become punishable.

(i) The cheque ought to have been presented to the bank within a period of 6 months [3
months]* from the date on which it is drawn or within the period of its validity, whichever is
earlier.

(ii) The  payee or the holder in due course of the cheque, as the case may be, ought to make a
demand for the payment of the said amount of money by giving a notice in writing, to the
drawer of the cheque, within 30 days of the receipt of information by him from the bank
regarding the return of the cheque as unpaid.

(iii) The drawer of such a cheque should have failed to make 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 15
days of the receipt of the said notice.

It is only upon the satisfaction of all the three conditions mentioned above and enumerated
under the proviso to Section 138 as clauses (a), (b) and (c) thereof that an offence under
Section 138 can be said to have been committed by the person issuing the cheque.

Title of the Case – Summon Trial Procedure

Name of the case – M/s Meters & Instruments Pvt. Ltd. vs. Kanchan Mehta., Crl. A. No.
1731 of 2017 (@SLP (Crl.) No. 5451 of 2017) (Supreme Court)

Date of Judgment – 05th October 2017

Judges: Justice Adarsh Kumar Goel & Justice Uday Umesh Lalit

Subject and sections involved – Section 138 of Negotiable Instruments Act, 1881
Issue:

1. Whether the court is right in closing the proceeding against the accused if the cheque
amount with interest is paid by the accused?
2. Whether summon trial procedure can be followed in such case?

Fact of the Case:

The cheques presented by respondent to appellant were returned by the Bank with an
endorsement “not arranged funds for”. At the request of the respondent, the appellant did not
present the said cheques since the respondent agreed to settle the dispute. However, the
respondent failed to settle the dispute subsequently. In these circumstances, on 8th January,
1997, the appellant sent a notice (to the respondent) under section 138(b) of the Negotiable
Instruments Act, 1881 (hereinafter referred to as ‘the Act’). The respondent duly received the
said notice. Subsequent thereto, those cheques were again presented before the Bank on 21st
January, 1997 by the appellant. On presentation, the said cheques were dishonoured for want
of sufficient funds.

Ratio of the Case:

The Supreme Court hold that where the cheque amount with interest and cost as assessed by
the Court is paid by a specified date, the Court is entitled to close the proceedings in exercise
of its powers under Section 143 of the Act read with Section 258 Cr.P.C. As already
observed, normal rule for trial of cases under Chapter XVII of the Act is to follow the
summary procedure and summons trial procedure can be followed where sentence exceeding
one year may be necessary taking into account the fact that compensation under Section
357(3) Cr.P.C. with sentence of less than one year will not be adequate, having regard to the
amount of cheque, conduct of the accused and other circumstances.

The Sentence

The sentence prescribed under Section 138 is up to two years or with fine which may extend
to twice the amount or with both. What needs to be noted is the fact that power under Section
357(3) CrPC to direct payment of compensation is in addition to the said prescribed sentence,
if sentence of fine is not imposed. The direction to pay compensation can be enforced by
default sentence under Section 64 IPC and by recovery procedure prescribed under Section
431 CrPC.

Summon to the Accused

In every complaint under Section 138 of the Act, it may be desirable that the complainant
gives his bank account number and if possible e-mail ID of the accused. If e-mail ID is
available with the Bank where the accused has an account, such Bank, on being required,
should furnish such e-mail ID to the payee of the cheque. In every summons, issued to the
accused, it may be indicated that if the accused deposits the specified amount, which should
be assessed by the Court having regard to the cheque amount and interest/cost, by a specified
date, the accused need not appear unless required and proceedings may be closed subject to
any valid objection of the complainant . If the accused complies with such summons and
informs the Court and the complainant by e-mail, the Court can ascertain the objection, if
any, of the complainant and close the proceedings unless it becomes necessary to proceed
with the case. In such a situation, the accused’s presence can be required, unless the presence
is otherwise exempted subject to such conditions as may be considered appropriate. The
accused, who wants to contest the case, must be required to disclose specific defence for such
contest. It is open to the Court to ask specific questions to the accused at that stage. In case
the trial is to proceed, it will be open to the Court to explore the possibility of settlement. It
will also be open to the Court to consider the provisions of plea bargaining. Subject to this,
the trial can be on day to day basis and endeavour must be to conclude it within six
months. The guilty must be punished at the earliest as per law and the one who obeys the
law need not be held up in proceedings for long unnecessarily.

Title of the Case – Compounding of offence 

Name of the case – Rameshbhai Somabhai Patel vs. Dineshbhai Achalanand Rathi.,
2004 SCC Online Guj 469, II (2205) BC 220 (Gujarat High Court)

Date of Judgment – 28th Jan 2004

Judges: Justice C.K. Buch

Subject and sections involved – Section 138 of Negotiable Instruments Act, 1881

Issue:

1. Whether formal permission of the court is required to compound the case registered
u/s 147 NI Act?

Fact of the Case:

The original complainant, Dineshbhai Rathi, who is respondent in the case, confirms that he
has received an amount of 1 Lakh INR and further confirms that he has compounded the
present case.

Ratio of the Case:

The High Court of Gujarat considering the language of section 147 of the NI Act, held that it
is not necessary to consider the scheme of Sec.320 of CrPC, but to appreciate the questions
posed, it can still be looked into other relevant provision. Sec.320 of CrPC divides
compoundable offences in two different parts by sub-section (1) & sub-section (2).
Subsequent sub-sections deal with other contingencies, qualifications or embargoes. But
Sec.147 of The N.I.Act says that offence shall be compoundable and it does not provide for
any other or further qualification or embargo like sub-section (2) of Sec.320 of CrPC. The
parties can compound the offence as if the offence is otherwise compoundable. Thus, the
offence is made straightway compoundable like the case described under sub-section (1) of
Sec.320 of CrPC. Sub-section (9) of Sec.320 of CrPC has no room to play because of non-
obstante clause in Sec.147 of The N.I.Act. However, while accepting such plea of
compromise at the revisional stage, the Court can certainly look to the intention of the
Legislature and object of sub-section (6) of Sec.320 of CrPC in the background of pragmatic
approach of the Hon'ble Supreme Court in the case of O.P.Dholakia vs. State of Haryana &
anr., (2000) 1 SCC 762 under Article 136 of the Constitution of India.

That if the original complainant comes to the Court and says that he is withdrawing
himself from prosecution on account of compromise and he has compounded the matter,
then the conviction and sentence have to be set aside. No formal permission to compound
the offence is required.

Case: Meters and Instruments (P) Ltd. v. Kanchan Mehta, (2018) 1 SCC 560] (supra)

Precedent on Compounding of Offence: Though compounding requires consent of both

parties, even in absence of such consent, the court, in the interests of justice, on being
satisfied that the complainant has been duly compensated, can in its discretion close the
proceedings and discharge the accused. 

Title of the Case – Quashing of complaint by the High Court under S. 482 CrPC

Name of the case – Gunmala Sales Pvt. Ltd. vs. Anu Mehta & Ors., Crl. A. No. 2228 of
2014 (@SLP (Crl.) No. 1724 of 2013) [(2015) 1 SCC 103] (Supreme Court)

Date of Judgment – 17th Oct 2014

Judges: Justice Ranjana Prakash Desai & Justice N.V. Ramana

Subject and sections involved – Section 138 of Negotiable Instruments Act, 1881

Issue:

1. Whether the High Court was justified in quashing the proceedings initiated by the
Magistrate on the ground that there was merely a bald assertion in the complaint filed
under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881
(“the NI Act”)?
2. Whether the Director who has resigned can be prosecuted after his resignation has
been accepted by the Board of the Directors of the Company?

Fact of the Case:

The complaint was filed u/s 138 & 141 of the NI Act. After the issue processed, the
respondents filed various application u/s 482 of CrPC. The High Court disposed of several
application based on similar grounds based on one reasoned order.

Ratio of the Case:

The division bench of Supreme Court held that if an accused wants the process under
Sections 138 and 141 to be quashed by filing a petition under Section 482 CrPC , he must
make out a case that making him stand the trial would be an abuse of process of court.

The doctrine of ‘Indoor Management’

The person entering into a transaction with the company only needed to satisfy that his
proposed transaction is not inconsistent with the articles and memorandum of the company.
He is not bound to see the internal irregularities of the company and if there are any internal
irregularities than the company will be liable as the person has acted in the good faith and he
did not know about the internal arrangement of the company.

The rule is based upon the obvious reason of convenience in business relations. Firstly, the
articles of association and memorandum are public documents and they are open to the public
for inspection. Hence an outsider “is presumed to know the constitution of a company, but
what may or may not have taken place within the doors that are closed to him.”

The doctrine of indoor management is evolved as a reaction to the doctrine of constructive

notice. It puts a Barr on the doctrine of constructive notice and it protects the third party who
acted in the act in the good faith. This doctrine protects outsiders dealing or contracting with
a company, It was analyzed that the doctrine does not operate in an arbitrary manner, there
are some restriction imposed on it like forgery, third party having knowledge of irregularity,
negligence, where the third party don’t read memorandum and articles and the doctrine will
not apply where the question is regarding of to the very existence of the company.

Director’s Liability

The court held that the doctrine of ‘Indoor Management’ would be a relevant factor to be
considered while assessing the averments to be made to satisfy the requirements of Section
141 of the NI Act. A complainant to whom a cheque is issued by a company may not be
aware of the functions performed by a particular Director in the company. The responsibility
of each of the Directors is exclusively the internal management of the company itself. 

Thus, it was held that vicarious liability is contemplated in the NI Act to ensure greater
transparency in commercial transactions. This object has to be kept in mind while considering
individual cases and hardship arising out of a particular case cannot be the basis for Directors
to try to wriggle out of prosecution. Section 482 of the Code can be invoked where it is clear
from documents on record, such as Form-32, that the Director is wrongly arraigned and not in
any other case. The High Court clearly fell into an error in quashing the proceedings and,
hence, impugned order deserves to be set aside.

Title of the Case – Presumption in Case of Cheque Bounce

Name of the case – Kishan Rao vs. Shankargouda., Crl. A. No. 803 of 2018 (@SLP (Crl.)
No. 10030 of 2016) (Supreme Court)

Date of Judgment – 02nd July, 2018

Judges: Justice A Bhushan and Justice A Sikri

Subject and sections involved – Section 139 of Negotiable Instruments Act, 1881

Issue:

1. What is the extent of section 139 NI Act?

2. Does the appellant follows the limitation u/s 139 NI Act?

Fact of the Case:

The appellant(complainant) and the respondent (accused) were known to each other and had
good relations. Accused approached the complainant for a loan of 2 lakhs for the purpose of
his business expenses and promised to repay the same within one month. On 25.12.2005,
complainant had paid sum of Rs.2,00,000/- as a loan. For repayment of the loan accused
issued post dated cheque dated 25.01.2006 in the name of complainant for the amount of
Rs.2,00,000/-. The cheque was presented for collection at Bank of Maharashtra Branch at
Gulbarga which could not be encashed due to insufficient funds. At the request of the accused
the cheque was again represented on 01.03.2006 for collection which was returned on
02.03.2006 by the Bank with the endorsement “insufficient funds”.

Ratio of the Case:

The division bench of Supreme Court has came-up with two legal position. Firstly, High
Court’s scope of revisional jurisdiction and secondly, presumption in favour of holder of
cheque under Section 139 of NI Act.

The presumption mandated by Section 139 of the Act does indeed include the existence of a
legally enforceable debt or liability. To that extent, the impugned observations in Krishna
Janardhan Bhat, (2008) 4 SCC 54, may not be correct. However, this does not in any way
cast doubt on the correctness of the decision in that case since it was based on the specific
facts and circumstances therein. As noted in the citations, this is of course in the nature of a
rebuttable presumption and it is open to the accused to raise a defence wherein the existence
of a legally enforceable debt or liability can be contested. However, there can be no doubt
that there is an initial presumption which favours the complainant.

Section 139 of the Act is an example of a reverse onus clause that has been included in
furtherance of the legislative objective of improving the credibility of negotiable instruments.
While Section 138 of the Act specifies a strong criminal remedy in relation to the dishonour
of cheques, the rebuttable presumption under Section 139 is a device to prevent undue delay
in the course of litigation. However, it must be remembered that the offence made punishable
by Section 138 can be better described as a regulatory offence since the bouncing of a cheque
is largely in the nature of a civil wrong whose impact is usually confined to the private parties
involved in commercial transactions. In such a scenario, the test of proportionality should
guide the construction and interpretation of reverse onus clauses and the defendant-accused
cannot be expected to discharge an unduly high standard or proof.”
Scope of Revisional Jurisdiction of High Court- That the High Court in exercise of
revisional jurisdiction shall not interfere with the order of the Magistrate unless it is perverse
or wholly unreasonable or there is non-consideration of any relevant material, the order
cannot be set aside merely on the ground that another view is possible.

With reference to the facts of the present case, the Court observed that in the instant case also
conviction of the accused was recorded, the High Court set aside the order of conviction by
substituting its own view. That the High Court did not returned any finding that order of
conviction based on evidence on record suffers from any perversity or based on no material
or there is other valid ground for exercise of revisional jurisdiction.

Presumption u/ Section 139 of NI Act– While referring to the case of Kumar Exports vs.
Sharma Carpets, the Supreme Court held that the accused may adduce evidence to rebut the
presumption, but mere denial regarding existence of debt shall not serve any purpose.

With reference to the facts of the present case, the Court noted that the trial court as well as
the Appellate Court having found that cheque contained the signatures of the accused and it
was given to the appellant to present in the Bank of the presumption under Section 139 was
rightly raised which was not rebutted by the accused. The accused had not led any evidence
to rebut the aforesaid presumption.

It was also stated that in the event the accused is able to raise a probable defence which
creates doubt with regard to the existence of a debt or liability, the presumption may fail.

Title of the Case – Handing Over of Dishonored Cheque is not an Offence u/s 138 of NI
Act

Name of the case – Smt. Asha Badwa vs. Ram Gopal., Crl.Misc. No. 2726/2014
(Rajasthan High Court)

Date of Judgment – 13th Sept 2017

Judges: Justice Dr. Pushpendra Singh Bhati

Subject and sections involved – Section 138 of Negotiable Instruments Act, 1881

Issue:

1. Whether petition for quashing entire proceeding of criminal case in nature of the case
is maintainable?

Fact of the Case:

A complaint was filed under Section 138 of the Negotiable Instrument Act, by the respondent
against the petitioner and her son. The complaint proceeded and after an enquiry, cognizance
has been taken against the present petitioner. It is an admitted position that the cheque was
issued by the son of the present petitioner. It is also an admitted position that the petitioner
was not the original partner in the Firm, but came into the picture only when her husband
expired and she entered the Firm.

Ratio of the Case:

The Rajasthan High Court observed that bare reading of the complaint as well as the relevant
law, on the face of it, makes it clear that the offence is not made out against the present
petitioner as she neither issued the cheque and it has not been attributed to her and the
allegation was that she had handed over the cheques which does not mean she had consented
to offence by any stretch of imagination.

Key Points from the Case

That the legislative intention while making a specific provision of Company/Firm was that
any person who was not directly responsible or merely a Director of Company or Firm could
be held guilty for the alleged offence, only if he had committed offence with the consent of
such person.

That on a bare reading of the complaint as well as the record, it is clear that only role of the
petitioner is that she handed over the cheque but it has not been alleged that what was her role
in consenting to the offence that is a default or dishonoring of the cheque.
That the purport of the special law under the Negotiable Instrument Act is to ensure that the
promise to pay is abided by the person so promising. The provision under Section 139 of the
NI Act is that it shall be presumed that the holder of a cheque received the cheque of the
nature referred to in Section 138 of NI Act for the discharge, in whole or in part, of any debt
or other liability.

That the legislative intention was that the holder of the cheque shall be entitled to receive the
amount so promised from the person from whom the cheque is received. Any person, other
than the person could be held responsible under Section 141(2) of the NI Act only when he is
an office bearer of the Company of Firm.

Title of the Case – Rules for Filing a Case u/s 138 NI Act after a Company has been
Declared Sick

Name of the case – Kusum Ingots & Alloys Ltd vs. Pennar Peterson Securities Ltd.
Crl.A. Nos. 212-216 of 2000 (Supreme Court)  

Date of Judgment – 23rd Feb 2000

Judges: Justice D. P. Mohapatra

Subject and sections involved – Section 138 of Negotiable Instruments Act, 1881

Issue:

1. Whether a company and its Directors can be proceeded against for having committed
an offence u/s 138 of NI Act after the company has been declared sick under the
provisions of The Sick Industrial Companies (Special Provisions) Act, 1985 before
the expiry of the period for payment of the cheque amount?

Fact of the Case:

Post-dated cheques were issued on behalf of the company in favour of the complainant in
course of business of (he company. When the complainant presented the cheques in the bank
they were returned without payment. Then the complainant issued notice to the company
and/or its Directors stating the facts of dishonour of the cheques and demanding payment.
Since no payment was made within the period of 15 days stipulated under the NI Act the
payee filed complaint against the company and/or its Directors alleging inter-alia that they
had committed an offence under section 138 of the NI Act. Before the cheques were
presented in the bank or after the bank declined to honour the cheques the drawer company
was declared sick under the provisions of the SICA by the Board of Industrial and Financial
Reconstruction (for short 'BIFR').

Ratio of the Case:

The Supreme Court while allowing the appeal in favour of appellant held that in section 22 A
of SICA provision is made enabling the Board to make an order in writing to direct the sick
industrial company not to dispose of, except with the consent of the Board, any of its assets -
(a) during the period of preparation or consideration of the scheme under section 18; and (b)
during the period beginning with the recording of opinion by the Board for winding up of the
company under sub-section (1) of section 20 and up to commencement of the proceedings
relating to the winding up before the concerned High Court. This exercise of the power by the
Board is conditioned by the prescription that the Board is of the opinion that such a direction
is necessary in the interest of the sick industrial company or its creditors or shareholders or in
the public interest. In a case in which the BIFR has submitted its report declaring a company
as 'sick' and has also issued a direction under section 22-A restraining the company or its
directors not to dispose of any of its assets except with consent of the Board then the criminal
case for the alleged offence under section 138 NI Act cannot be instituted during the period in
which the restraint order passed by the BIFR remains operative cannot be rejected outright.
Whether the contention can be accepted or not will depend on the facts and circumstances of
the case. Take for instance, before the date on which the cheque was drawn or before expiry
of the statutory period of 15 days after notice, a restraint order of the BIFR under Section 22-
A was passed against the company then it cannot be said that the offence under section
138 NI Act was completed. In such a case it may reasonably be said that the dishonouring of
the cheque by the bank and failure to make payment of the amount by the company and/or its
Directors is for reasons beyond the control of the accused. It may also be contended that the
amount claimed by the com-plainant is not recoverable from the assets of the company in
view of the ban order passed by the BIFR. In such circumstances it would be unjust and
unfair and against the intent and purpose of the statute to hold that the Directors should be
compelled to face trial in a criminal case.

Title of the Case – Power of Attorney Cannot be Delegated without Specific Clause

Name of the case – A.C. Narayanan vs. State of Maharashtra & Anr., Crl. A. No. 73 of
2007 (Supreme Court)  

Date of Judgment – 13th Sept 2013

Judges: Chief Justice of India P. Sathasivam, Justice Ranjana Prakash Desai, Justice
Ranjan Gogoi

Subject and sections involved – Section 138 of Negotiable Instruments Act, 1881

Issue:

1. Whether a Power of Attorney holder can sign and file a complaint petition on behalf
of the complainant?/ Whether the eligibility criteria prescribed by Section 142(a) of
NI Act would stand satisfied if the complaint petition itself is filed in the name of the
payee or the holder in due course of the cheque?
2. Whether a Power of Attorney holder can be verified on oath under Section 200 of the
Code?
3. Whether specific averments as to the knowledge of the Power of Attorney holder in
the impugned transaction must be explicitly asserted in the complaint?
4. If the Power of Attorney holder fails to assert explicitly his knowledge in the
complaint then can the Power of Attorney holder verify the complaint on oath on such
presumption of knowledge?
5. Whether the proceedings contemplated under Section 200 of the Code can be
dispensed with in the light of Section 145 of the N.I. Act which was introduced by an
amendment in the year 2002?
Fact of the Case:

A.C. Narayana, Vice-Chairman and Managing Director, Harvest Financials Ltd. collected
various amounts from various persons in the form of loans and in consideration thereof issued
post-dated cheques either in his personal capacity or as the signatory of the company which
got dishonoured.

Ratio of the Case:

The Supreme Court held that the general power of attorney cannot be delegated to another
person without specific clause permitting the same in the power of attorney.

When the Court shall take Cognizance of an Offence

In terms of Section 142 of the N.I. Act, 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. with a non obstante clause, Section
142 provides that only two categories of persons, namely, the payee or the holder in due
course of the cheque is entitled to file a complaint under Section 138 of the N.I. Act.

Issue 1

in the case of Vishwa Mitter v. O.P. Poddar (1983 4 SCC 701) held that it is clear that anyone
can set the criminal law in motion by filing a complaint of facts constituting an offence
before a Magistrate entitled to take cognizance. It has been held that no court can decline to
take cognizance on the sole ground that the complainant was not competent to file the
complaint. It has been held that if any special statute prescribes offences and makes any
special provision for taking cognizance of such offences under the statute, then the
complainant requesting the Magistrate to take cognizance of the offence must satisfy the
eligibility criterion prescribed by the statute. In the present case, the only eligibility criteria
prescribed by Section 142 is that the complaint must be by the payee or the holder in due
course. This criteria is satisfied as the complaint is in the name and on behalf of the appellant
Company."
However, in a later judgment in Janki Vashdeo Bhojwani and Anr. vs. Indusind Bank Ltd.
and Ors. [2005 (2) SCC 217], albeit in a different context, another Division Bench of this
Court overruled the judgment of the Bombay High Court in Pradeep Mohanbay vs. Minguel
Carlos Dias [2000 (1) Bom. L.R. 908], inter alia opining as follows:

"Order 3 Rules 1 and 2 CPC empowers the holder of power of attorney to 'act' on behalf of
the principal. In our view the word 'acts' employed in Order 3 Rules 1 and 2 CPC confines
only to in respect of 'acts' done by the power-of-attorney holder in exercise of power granted
by the instrument. The term 'acts' would not include deposing in place and instead of the
principal. In other words, if the power of attorney holder has rendered some 'acts' in
pursuance of power of attorney, he may depose for the principal in respect of such acts, but
he cannot depose for the principal for the acts done by the principal and not by him.
Similarly, he cannot depose for the principal in respect of the matter of which only the
principal is entitled to be cross-examined."

Thus, filing of complaint petition under Section 138 of N.I Act through power of attorney is
perfectly legal and competent.

Issue 2: Section 200 of CrPC, 1973

The court observed that there is no dispute that complaint has to be filed by the complainant
as contemplated by Section 200 of the Code, but the said Section does not create any
embargo that the attorney holder or legal representative(s) cannot be a complainant.

Thus, the Power of Attorney holder can depose and verify on oath before the Court in order
to prove the contents of the complaint. However, the power of attorney holder must have
witnessed the transaction as an agent of the payee/holder in due course or possess due
knowledge regarding the said transactions.

Issue 3: Power of Attorney

The power of attorney holder is the agent of the grantor. When the grantor authorizes the
attorney holder to initiate legal proceedings and the attorney holder accordingly initiates such
legal proceedings, he does so as the agent of the grantor and the initiation is by the grantor
represented by his attorney holder and not by the attorney holder in his personal capacity.
Therefore, where the payee is a proprietary concern, the complaint can be filed by the
proprietor of the proprietary concern, describing himself as the sole proprietor of the payee,
the proprietary concern, describing itself as a sole proprietary concern, represented by its sole
proprietor, and the proprietor or the proprietary concern represented by the attorney holder
under a power of attorney executed by the sole proprietor. However, we make it clear that the
power of attorney holder cannot file a complaint in his own name as if he was the
complainant. In other words, he can initiate criminal proceedings on behalf of the principal.

Thus, it is required by the complainant to make specific assertion as to the knowledge of the
power of attorney holder in the said transaction explicitly in the complaint and the power of
attorney holder who has no knowledge regarding the transactions cannot be examined as a
witness in the case.

Issue 4 & 5:

From a conjoint reading of Sections 138, 142 and 145 of the N.I. Act as well as Section
200 of the Code, it is clear that it is open to the Magistrate to issue process on the basis of the
contents of the complaint, documents in support thereof and the affidavit submitted by the
complainant in support of the complaint. Once the complainant files an affidavit in support of
the complaint before issuance of the process under Section 200 of the Code, it is thereafter
open to the Magistrate, if he thinks fit, to call upon the complainant to remain present and to
examine him as to the facts contained in the affidavit submitted by the complainant in support
of his complaint. However, it is a matter of discretion and the Magistrate is not bound to call
upon the complainant to remain present before the Court and to examine him upon oath for
taking decision whether or not to issue process on the complaint under Section 138 of the N.I.
Act. For the purpose of issuing process under Section 200 of the Code, it is open to the
Magistrate to rely upon the verification in the form of affidavit filed by the complainant in
support of the complaint under Section 138 of the N.I. Act. It is only if and where the
Magistrate, after considering the complaint under Section 138 of the N.I. Act, documents
produced in support thereof and the verification in the form of affidavit of the complainant, is
of the view that examination of the complainant or his witness(s) is required, the Magistrate
may call upon the complainant to remain present before the Court and examine the
complainant and/or his witness upon oath for taking a decision whether or not to issue
process on the complaint under Section 138 of the N.I. Act.

The Court thus observed that the power of attorney holder may be allowed to file, appear and
depose for the purpose of issue of process for the offence punishable under Section 138 of the
N.I. Act. An exception to the above is when the power of attorney holder of the complainant
does not have a personal knowledge about the transactions then he cannot be examined.
However, where the attorney holder of the complainant is in charge of the business of the
complainant-payee and the attorney holder alone is personally aware of the transactions, there
is no reason why the attorney holder cannot depose as a witness. Nevertheless, an explicit
assertion as to the knowledge of the Power of Attorney holder about the transaction in
question must be specified in the complaint. On this count, the fourth question becomes
infructuous.

Validity Of Sub-Delegation Of Functions Of The Power Of Attorney

The Court observed on this point that the attorney holder can sign and file a complaint on
behalf of the complainant-payee. However, whether the power of attorney holder will have
the power to further delegate the functions to another person will completely depend on the
terms of the general power of attorney. As a result, the authority to sub- delegate the
functions must be explicitly mentioned in the general power of attorney. Otherwise, the sub-
delegation will be inconsistent with the general power of attorney and thereby will be invalid
in law. Nevertheless, the general power of attorney itself can be cancelled and be given to
another person.

Thus, the functions under the general power of attorney cannot be delegated to another
person without specific clause permitting the same in the power of attorney. Nevertheless, the
general power of attorney itself can be cancelled and be given to another person. 

10

Title of the Case – When Director of the Company will be Liable for Offence u/s 138
Name of the case – Harshendra Kumar D vs. Rebatilata Koley etc., Crl. A. Nos. 360-77
of 2011 (@ SLP (Crl.) Nos. 3008-3025 of 2008 (Supreme Court)  

Date of Judgment – 08th Feb 2011

Judges: Justice Aftab Alam & Justice R.M. Lodha

Subject and sections involved – Section 141 of Negotiable Instruments Act, 1881

Issue:

1. Whether for purposes of Section 141 of the Negotiable Instruments Act, 1881, it is
sufficient if the substance of the allegation read as a whole fulfil the requirements of
the said section and it is not necessary to specifically state in the complaint that the
person accused was in charge of, or responsible for, the conduct of the business of the
company.
2. Whether a director of a company would be deemed to be in charge of, and responsible
to, the company for conduct of the business of the company and, therefore, deemed to
be guilty of the offence unless he proves to the contrary.
3. Even if it is held that specific averments are necessary, whether in the absence of such
averments the signatory of the cheque and or the managing directors or joint
managing director who admittedly would be in charge of the company and
responsible to the company for conduct of its business could be proceeded against."

Fact of the Case:

The complainants were interested in business relationship with Rifa Healthcare (India) Pvt.
Ltd. (for short, `the Company') for the sale of bio-ceramic products. The complainants, for
the orders they had placed, issued demand drafts in favour of the Company. It appears that
the Company had not delivered the products ordered by the complainants and accordingly
they asked the Company for return of their money. 

It was alleged that the Managing Director and the two Directors (including the appellant)
were responsible for day-to-day affairs of the Company and that it was on their assurance that
the complainant issued demand draft in favour of the Company and when the products of the
Company were not received by the complainant, she contacted the accused persons and told
them that she could not continue business with them and asked for return of her money.
Accordingly, for and on behalf of the Company, in discharge of the existing liability, an
account payee cheque was issued but the cheque was returned by the complainant's banker on
presentation with the endorsement `insufficient fund'. The complainant then sent legal notice
asking the accused persons to pay the amount of cheque within 15 days from the date of the
receipt of the notice but despite service of notice, no payment has been made.

Ratio of the Case:

The Supreme Court held that in every company is required to keep at its registered office a
register of its directors, managing director, manager and secretary containing the particulars
with respect to each of them as set out in clauses (a) to (e) of sub-section (1) of Section
303 of the Companies Act, 1956. Sub-section (2) of Section 303 mandates every company to
send to the Registrar a return in duplicate containing the particulars specified in the register.
Any change among its directors, managing directors, managers or secretaries specifying the
date of change is also required to be furnished to the Registrar of Companies in the prescribed
form within 30 days of such change. There is, thus, statutory requirement of informing the
Registrar of Companies about change among directors of the company. In this view of the
matter, in our opinion, it must be held that a director - whose resignation has been accepted
by the company and that has been duly notified to the Registrar of Companies - cannot be
made accountable and fastened with liability for anything done by the company after the
acceptance of his resignation. The words `every person who, at the time the offence was
committed', occurring in Section 141 (1) of the NI Act are not without significance and these
words indicate that criminal liability of  a director must be determined on the date the offence
is alleged to have been committed.