Holding

A complaint under Section 138 is maintainable when filed in the name of the payee/company, the burden of proving lack of debt rests on the accused, and a stop‑payment dishonour does not defeat the offence.

Summary

The appellant, MMTC Ltd., filed two complaints under Section 138 of the Negotiable Instruments Act against the respondent company for cheques that were returned marked "payment stopped by drawer". The complaints were filed by the appellant’s regional manager, who allegedly lacked authority to represent the company. The High Court quashed the complaints on the grounds of lack of authorized complainant and alleged absence of a subsisting debt. The Supreme Court held that a complaint is maintainable if it is filed in the name of the payee/company, even if initially filed by an unauthorized employee, because the company can later rectify the defect by sending a competent representative. The Court also ruled that the complaint need not expressly allege an existing liability; the burden to prove the absence of debt lies on the accused, and a "stop payment" instruction does not defeat the offence under Section 138, with the presumption under Section 139 remaining applicable. Consequently, the Supreme Court set aside the High Court order and directed the magistrate to proceed with the complaints.

Issues considered

The eligibility of a corporate complainant and whether a complaint under Section 138 can be filed by an employee lacking prior authority.
Whether the complaint must specifically allege a subsisting debt or liability and who bears the burden of proof.
Whether a cheque dishonoured by a "stop payment" instruction can constitute an offence under Section 138, and the effect of the presumption under Section 139.

Legislation cited

Negotiable Instruments Act, 1881s. 138, s. 139, s. 142

Subjects

Negotiable Instruments ActSection 138Cheque dishonourStop paymentCorporate complainantBurden of proofCriminal procedure

Judgment

MIS. M.M.T.C. LTD. AND ANR. A
v.
MIS. MEDCHL CHEMICALS AND PHARMA (P) LTD. AND ANR.

NOVEMBER 19, 2001

[K.T. THOMAS AND S.N. VARIAVA, JJ.] B

Negotiable Instruments Act, 1881 :

Sections 138, 139 and 142-Dishonour of cheque for insufficiency of
funds-Complaint-Filing of-Held, must be by the payee or the holder of the
cheque in due course-Complaint filed in the name and on behalf of a
c
company by its enzployee without necessary authorisation-Held, nzaintain-
able since at a subsequent stage the company can send a competent person to
represent it.

Section 138-Dishonour qf cheque-Complaint-Maintainability of- D
Denial of existing debt or liability-Held, burden qf proof lies on the accused
and it has to be discharged at the trial siage-At the complaint stage merely
on the basis of avennents High Court could not conclude that there was no
existing debt or liability.

Sections 138 and I 39-Dishonour qf cheque due to "stop payment" E
instructions-Offence under section 138-Presumption of-Held, Offence un-
der section 138 could still be made out on the presuntption that the dishonour
was due to insufficiency o.f.funds~Burden qf proof regarding s~{ficiency of
funds lies on the accused.

Appellant -Company and the First Respondent Company entered
F
into a Memorandum of Understanding and in pursuance thereof two
cheques were issued by the first Respondent in favour of the appellant.
Both the cheques when presented for payment were returned with the
endorsement "payment stopped by drawer". After issuing notices,
- the appellant filed complaints under Section 138 of the Negotiable Instru-
ments Act, 1881 through its Regional Manager. The respondent filed
G

petitions for quashing of the said complaints on the grounds that the
complaints filed by the Regional Manager were not maintainable and that
the cheques were not issued against any existing debt or liability. High
Court quashed _the complaints. Hence, this appeal. H
265
266 SUPREME COURT REPORTS [2001] SUPP. 5 S.C.R.
A Disposing of the appeals, the Court

HELD : I. The only eligibility criteria prescribed by Section 142 of
the Negotiable Instruments Act, 1881 for maintaining a complaint under
Section 138 of the Act is that the complaint must be by the payee or the
holder of the cheque in due course. In the instant case the two complaints
B were in the name and on behalf of the appellant company who is the payee
of the two cheques. Even presuming that initially there was no authority,
still the company can, at any stage, rectify that defect. At a subsequent stage
the company can send a person who is competent to represent the company.
Thus, High Court was not justified in quashing the complaint on the grounds
C that it was not filed by a competent person. [270-C-G; 269-H]

Vishwa Mitrer v. O.P. Poddar, [1983) 4 SCC 701 and Associated Cement
Co. v. Keshvanand, [1998] l SCC 687, relied on.

2. There is, no requirement that the complaint must specifically
D allege in the complaint that there was a subsisting liability. The burden of
proving that there was no existing debt or liability was on the respondents.
This they have to discharge in the trial. Merely on the basis of averments in
the Petitions the High Court could not have concluded that there was no
existing debt or liability. The power of quashing criminal proceedings
should be exercised very stringently and with circumspection. High Court
E was not justified in embarking upon an enquiry as to the reliability or
genuineness or otherwise of the allegations made in the complaint. The
inherent powers do not confer an arbitrary jurisdiction on the Court to act
according to its whim or caprice. [[271-F-G; A; 270-H]

F Maruti Udyog Ltd. v. Narender, [1999) 1 SCC 113 and K.N. Beena v.
Muniyappan, [2001] 7 SCALE 331, relied on.

3. Even when the cheque is dishonoured by reason of "stop pay-
ment" instructions, an offence under s.138 could still be made out. By
virtue of Section 139, Court has to presume that the chque was received
G by the holder for the discharge, in whole or in part, of any debt or
liability. Of course this is a rebuttable presumption. The accused can thus
show that the "stop payment" instructions were not issued because of
insufficiency or paucity of funds. If the accused shows that in his account
there was sufficient funds to clear the amount of the cheque at the time of
H presentation of the cheque for encashment at the drawer bank and that the
M.M.T.C. LTD. v. MEDCHLCHEMICALS PHARMA (P) LTD. [VARIA VA, J.l 267
stop payment notice had been issued because of other valid causes includ- A
ing that there was no existing debt or liability at the time of presentation of
cheque for encashment, then offence under Section 138 would not be made
out. The important thing is that the burden of so proving would be on the
accused. Thus it cannot be said that as payment of the cheques had been
stopptJ by the drawer, one of the ingredients of S.138 was not fulfilled and
B
that the complaints were not maintainable. [271-H; 272-A-D]

Modi Cements Ltd. v. Kuchil Kumar Nandi, [1998] 3 SCC 249, relied
on.

CRIMINAL APPELLATE JURISDICTION Criminal Appeal Nos.
1173-1174 of 2001.
c
From the Judgment and Order dated 18.12.98 of the Madras High Court
in Cr!. O.P. Nos. 17210-17211of1997.

V.R. Reddy, Ashok Sharma and V.G. Pragasam for the Appellants.
D
S.M. Deenadayalan for K.V. Vijayakumar for the Respondents.

The Judgment of the Court was delivered by

S.N. VARlAVA, J. Leave granted.
E
Heard parties.

These Appeals are against a Judgment dated 18th December, 1998. By
this common Judgment two complaints, filed by the appellants, under Section
138 of the Negotiable Instruments Act have been quashed.
F
The appellant is a Government of India Company. incorporated under
the Companies Act. The appellant has a Regional Office at Chennai. The 1st
respondent is also a Company. The 2nd anJ 3rd respondents were/are the
Directors of the I st respondent Company. It is stated that 2nd respondent has
now died.
G
The appellant and the 1st respondent entered into a Memorandum of
Understanding dated !st June, 1994. This Memorandum of Understanding was
slightly altered on 19th September, 1994. Pursuant to the Memorandum of
Understanding two cheques, one dated 31st October, 1994 in a sum of Rs.
20,26,995 and another dated I 0th November, 1994 in a sum of Rs. 22, 10, 156, H
268 SUPREME COURT REPORTS [2001] SUPP. 5 S.C.R.
A were issued by the !st respondent in favour of the appellant. Both the cheques
when presented for payment were returned with the endorsement "payment
stopped by drawer". Two notices were served by the appellant on the !st
respondent. As the amounts under the cheques were not paid the appellants
lodged two complaints through one Lakshman Goel, the Manager of the
Regional Office of the appellant.
B
Respondents filed two petitions for quashing of the complaints. By the
impugned order both the complaints have been quashed.

At this stage it must be mentioned that respondents had also issued, to
the appellants, four other cheques. Those cheques were also dishonoured when
c presented for payment. Four other complaints, under Section 138 of the Ne-
gotiable Instruments Act, had also been filed by the appellants. Those four
complaints had also been lodged by the same Shri Lakshman Goel. In those
four cases the respondents fi!ed separate applications for discharge. Those
discharge applications were on identical grounds as urged by the respondents
D in the two petitions for quashing the complaints. The Magistrate accepted the
contention and discharged the respondents. The High Court allowed the Revi-
sion filed by the appellants and set aside the Order of discharge. The High
Court held, as between the same parties, that the Magistrate had erred in
holding that the complaints filed by Lakshman Goel were not maintainable.
The High Court held that, at this stage, it was not possible to accept defence
E
that complainant/appellants were not entitled to present the cheques as re-
spondents had expected the goods. The High Court restored the four com-
plaints and directed lQe Magistrate to proceed with the trial in accordance with
law. The respondents filed SLPs before this Court which were summarily
dismissed.
F
In this case the respondents have taken identical contentions in their
petitions lo quash the complaints viz. that the complaints filed by Mr. Lakshman
Goel were not maintninable and that the cheques were not given for any debt
or liability. It was pointed out to the learned Judge that, between the same '
parties and on identical facts, it had already been held that as case for
G
discharge was made out. Yet the learned Judge chose lo ignore those findings
and proceeded to hold to the contrary.

In the impugned Judgment it has been held that the complaints filed by
Mr. Lakshman Goel were not maintainable. It was noticed that in those two
H complain ls, at a subsequent stage, one Mr. Sampath Kumar, the Deputy General
M.M.T.C. LTD. v. MEDCHL CHEMICALS PHARMA (P) LTD. [VARIAVA, l.] 269
Manager of the appellant was allowed to represent the appellants. The High A
Court held that it is only an Executive Director of the Company who has the
authority to institute legal proceedings. It is held that the complaint could only
be filed by a ?erson who is in charge of or was responsible to the Company.
It is held that authorisation must be on the date when the complaint is filed and
a subsequent authorisation does not validate the complaint. It is held that the B
absence of a complaint by a duly delegated authority is not a mere defect or
irregularity which could be cured subsequently. It is held that if the record does
disclose any authorisation, then taking cognizance of the complaint was barred
by Section 142(a) of the Negotiable Instruments Act. It has been held that
Senior Manager (who had lodged the complaints) and the Deputy General
Manager (who was substituted) had not been authorised by the Board of
c
Directors to sign and file the complaint on behalf of the Company or to
prosecute the same. It is held that the Manager or the Deputy General Manager
were mere paid employees of the Company. It is then held as follows:

"Therefore, it is clear that the legal position as crystallised by the D
rulings is to the effect that a complaint under Section 138 of the
Negotiable Instruments Act can be filed for and on behalf of a Body
such as Corporation, who has only artificial existence through a
particular mode and when that mode is not followed, any proceedings
initiated or any complaint filed will be vitiated from its very inception. E
In my opinion, here, the complaint is signed and presented by a person,
who is neither an authorised agent nor a person empowerc~ under the
articles of Association or by any resolution of the Board to do so.
Hence, the complaint is not maintainable. The taking cognizance of
such a complaint is legally not acceptable. Hence, these two F
complaints filed for and on behalf of MMTC Limited against the
Petitioners herein, which were taken on file in C. C. Nos. 3324 of
J995 and 3325 of 1995 are not maintainable at all and that cognizance
of the said complaints ought not to have been taken by the
Magistrate. "
G
In our view the reasoning given above cannot be sustained. Section 142
· of the Negotiable Instruments Act provides that a complaint under Section 138
can be made by the payee Pr the holder in due course of the said cheque. The
two complaints, in question, are by the appellant Company who is the payee
of the two cheques. H
270 SUPREME COURT REPORTS [2001] SUPP. 5 S.C.K

A This Court has, as far back as, in the case of Vishwa Miller v. 0. P.
Poddarreported in [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
B
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
c course. This criteria is satisfied as the complaint is in the name and on behalf
of the appellant Company.

In the case of Associated Cement Co. Ltd. v. Keshvanand reported in
[1998] I SCC 687, it has been held by this Court that the complainant has
to be a corporeal person who is capable of making a physical appeare.nce in
D the court. It has been held that if a complaint is made in the name of a
incorporeal person (like a company or corporation) it is necessary that, a
natural person represents such juristic person in the court. It is held that the
court looks upon the natural person to be the complainant for all practical
purposes. It is held that when the complainant is a body corporate it is the de
E Jure complainant, and it must necessarily associate a human being as de facto
complaint to represent the former in court proceedings. It has further been held
that no Magistrate shall insist that the particular person, whose statement was
taken on oath at the first instance, alone can continue to represent the company
till the end of the proceedings. It has been held that there may be occasions
when different persons can represent the company. It has been held that it is
F open to the de Jure complainant company to seek permission of the court for
sending any other person to represent the company in the court. Thus, even
presuming, that initially there was no authority, still the Company can, at any
stage, rectify that defect. At a subsequent stage the Company can send a person
v.-ho is competent to represent the company. The complaints could thus not
G have been quashed on this ground.

The learned Judge has next gone into facts and arrived at a conclusion
that the cheques were issued as security and not for any debt or liability
existing on the date they were issued. In so doing the learned Judge has ignored
well settled law that the power of quashing criminal proceedings should be
H exercised very stringently and with circumspection. It is settled law that at this
M.M.T.C. LTD. v. MEDCHLCHEMICALS PHARMA (P) LTD. [VARIAVA,J.l 271
stage the Court is not justified in embarking upon an enquiry as to the reliability A
or genuineness or otherwise of the allegations made in the complaint. The
inherent powers do not confer an arbitrary jurisdiction on the court to act
according to its whim or caprice. At this stage the Court could not have gone
into merits and/or come to a conclusion that there was no existing debt or
liability.
B
It is next held as follows:

"This is a special provision incorporated in the Negotiable Instrument
Act. It is necessary to allege specifically in the complaint that there was
a subsisting liability and an enforceable debt and to discharge th~ same,
the cheques were issued. But, we do not find any such allegation at all. c
The absence of such vital allegation, considerably impairs the
maintainability."

In the case of Maruti Udyog Ltd. v. Narender reported in (1999] l SCC
113, this Court has held that, by virtue of Section 139 of the Negotiable
D
Instruments Act, the Court has to draw a presumption that the holder of the
cheque received the cheque for discharge of a debt or liability until the
contrary is proved. This Court has held that at the initial stage of the proceed-
ings the High Court was not justified in entertaining and accepting a plea that
there was no debt or liability and thereby quashing the complaint.
E
A similar view has been taken by this Court in the case of K. N. Beena
v. Muniyappan reported in 2001 (7) SCALE 331, wherein again it has been
held that under Section 139 of the Negotiable Instruments Act the Court has
to presume, in a complaint under Section 138, that the cheque had been issued
for a debt or liability.
F
/ There is therefore no requirement that the Complainant must specifi-
cally allege in the complaint that there was a subsisting liability. The burden
of proving that there was no existing debt or liability was on the respondents.
This they have to discharge in the trial. At this stage, merely on basis of
averments in the Petitions filed by them the High Court could not have G
concluded that there was no existing debt or liability.

Lastly it was submitted that a complaint under Section 138 could only
be maintained if the cheque was dishonoured for reason of funds being
insufficient to honour the cheque or if the amount of the cheque exceeds the
amount in the account. It is submitted that as payment of the cheques had been H
272 SUPREME COURT REPORTS (2001] SUPP. 5 S.C.R.
A stopped by the drawer one of the ingredients of Section 138 was not fulfilled
and thus _the complaints were not maintainable.

Just such a contention has been negatived by this Court has, in the case
of Modi Cements Ltd. v. Kuchil Kumar Nandi reported in [1998] 3 SCC 249.
It has been held that even though the cheque is dishonoured by reason of 'stop
B payment' instruction an offence under Section 138 could still be made out. It
is held that the presumption under Section 139 is attracted in such a case also.
The authority shows that even when the cheuqe is dishonoured by reason of
stop payment instructions by virtue of Section 139 the Court has to presume
that the cheque was received by the holder for the discharge, in whole or in
•
c part, of any debt or liability. Of course this is a rebuttable presumption. The
accused can thus show that the "stop payment" instructions were not issued
because of insufficiency or paucity of funds. If the accused shows that in his
account there was sufficient funds to clear the amount of the cheque at the
time of presentation of the cheque for encashment at the drawer bank and that
the stop payment notice had been issued because of other valid causes
D including that there was no existing debt or liability at the time of presentation
of cheque for encashment, then offence under Section 138 would not be made
out. The important thing is that the burden of so proving would be on the
accused. Thus a Court cannot quash a complaint on this ground.

In this view of the matter, the impugned Judgment cannot be sustained
E
and is set aside. The learned VII Metropolitan Magistrate, G.T. Chennai is
directed to proceed with the complaints against respondents 1 and 3 in
accordance with law. It is made clear that the setting aside of the impugned
Order will not tantamount to preventing the respondents from taking, at the
trial, pleas available to them including those taken herein.
F
The Appeals stand disposed of accordingly. There will be no order as
to costs.

S.V.K. Appeals disposed of.