Sec 138 NI Act - Merely Because Complaint Mentions Managing Director's Name First, It Can't Be Held That Complaint Is Not On Behalf Of Company : Supreme Court

The Supreme Court has held that a complaint filed on behalf of a company under Section 138 of the Negotiable Instruments Act is not liable to be dismissed for the sole reason that it stated the name of the Managing Director first followed by the company's name.

A bench comprising Justices Sanjay Kishan Kaul and MM Sundersh held that though this format may not be perfect it cannot be termed defective.

"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 bench observed in the order.

In this case, the subject cheques were issued in favour of  a company named M/s. Bell Marshall Telesystems Limited. The complaint was filed with the following description of the complainant : "Mr. Bhupesh M. Rathod, Managing Director of M/s. Bell Marshall Telesystems Ltd......".

The complaint was accompanied with a copy of the board resolution which authorized the Managing Director to file the complaint.

The accused, among other things, objected to the complaint on the ground that it was filed in the personal capacity of Bhupesh Rathod and not on behalf of the company.

The trial court acquitted the accused holding that there was no document to show the loan being granted and that the board resolution was not signed. The complainant filed appeal before the High Court.

The High Court dismissed the appeal observing that the complaint was not filed on behalf of the company and that the complainant was not the payee of the cheque.

Supreme Court's analysis

At the outset, the Court noted that the respondent, having admitted the signatures of the cheque, had to discharge the burden of proving that the transaction was not covered under Section 138 NI Act.  Other than taking a technical objection, really nothing has been said on the substantive aspect.

As regards the principles governing the filing of a complaint by a corporate entity, the bench referred to the precedent in Associated Cement Co. Ltd. v. Keshavanand (2002) 1 SCC 234. The body corporate will be the de jure complainant but the human agent representing it will be the de facto complainant.

"...no Magistrate could insist that the particular person whose statement was taken on oath alone can continue to represent the Company till the end of the proceedings. Not only that, even if there was initially no authority the Company can at any stage rectify that defect by sending a competent person", the Court said in the judgment.

Looking at the format of the complaint, the Court said that it was apparent that the Managing Director has filed it on behalf of the company.

"The description of the complainant with its full registered office address is given at the inception itself except that the Managing Director's name appears first as acting on behalf of the Company. The affidavit and the cross-examination in respect of the same during trial supports the finding that the complaint had been filed by the Managing Director on behalf of the Company. Thus, the format itself cannot be said to be defective though it may not be perfect. The body of the complaint need not be required to contain anything more in view of what has been set out at the inception coupled with the copy of the Board Resolution. There is no reason to otherwise annex a copy of the Board Resolution if the complaint was not being filed by the appellant on behalf of the Company",  the Court observed in this regard.

To technical a view to defeat a complain merely because the body of the complaint does not elaborate upon the authorization.

The Court further noted that a copy of the Board Resolution was filed along with the complaint.

"A Manager or a Managing Director ordinarily by the very nomenclature can be taken to be the person in-charge of the affairs 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.  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 Supreme Court reversed the judgments of the High Court and the Magistrate. On facts, the Court held that the respondent was liable to be convicted for the offence under Section 138 NI Act. The Court held that the respondent should be sentenced with imprisonment for a term of one year and with fine twice the amount of the cheque, i.e., Rs.3,20,000/-.

"However, in view of passage of time, we provide that if the respondent pays a further sum of Rs.1,60,000/- to the appellant, then the sentence would stand suspended. The needful be done by the respondent within two (2) months from today. The appellant would also be entitled to costs", the bench added.

Case Title : Bhupesh Rathod versus Dayashankar Prasad Chaurasia and another | Criminal Appeal No.1105/2021

Coram : Justices Sanjay Kishan Kaul and MM Sundersh

Citation : LL 2021 SC 633

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