10 Remarkable Judgments on NI Act that can add Strength to your Case Amaresh Patel TOP STORIES Thu, Dec 05, 2019, at ,07:15 AM 1 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: 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. Click Here to Get All Important Judgment of the Month 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: Whether precedent laid down in Sadanandan Bhadran’s Case is relevant? 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. Click Here to Get All Important Judgment of the Month 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. 3 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: Whether the court is right in closing the proceeding against the accused if the cheque amount with interest is paid by the accused? 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. Click Here to Get All Important Judgment of the Month 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. 4 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: 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. Click Here to Get All Important Judgment of the Month 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. 5 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: 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”)? 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. Click Here to Get All Important Judgment of the Month 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. 6 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: What is the extent of section 139 NI Act? 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”. Click Here to Get All Important Judgment of the Month 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. Click Here to Get Into Legal World Magazine for Advocates and Law Students 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. 7 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: 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. Click Here to Get All Important Judgment of the Month 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. 8 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: 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'). Click Here to Get All Important Judgment of the Month 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. 9 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: 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? Whether a Power of Attorney holder can be verified on oath under Section 200 of the Code? Whether specific averments as to the knowledge of the Power of Attorney holder in the impugned transaction must be explicitly asserted in the complaint? 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? 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. Click Here to Get All Important Judgment of the Month 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." Click Here to Get Into Legal World Magazine with all the Important Judgments of the Month 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. Click Here to Get Certification Course on Advance Legal Drafting by Advocates of Supreme Court under Sui Juris Law Firm 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. Be a Pro in Drafting. Click Here to Get Certification Course on Advance Legal Drafting 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. Click Here to Get Legal Magazine with Important Judgments, Legal Updates, and much More 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: 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. 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. 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. Click Here to Get All Important Judgment of the Month 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.