Court’s Decision:
The Calcutta High Court set aside the conviction of the petitioner under Section 138 of the Negotiable Instruments Act, 1881, holding that the complaint filed by a company director in his personal capacity, without authorisation or power of attorney from the company, was legally untenable. Justice Ajay Kumar Gupta held that the essential ingredient of a legally enforceable debt against the complainant was missing and that both the trial and appellate courts had erred in convicting the petitioner without addressing these legal deficiencies.
Facts:
The dispute originated from an agreement dated 26.06.2013 between a real estate development company and the petitioner, for the demolition and debris clearance of a building. The contract, valued at ₹8.75 lakhs, was payable in two instalments: ₹5 lakhs on signing and ₹3.75 lakhs before 50% of the work was completed. A blank cheque allegedly issued as security was later filled by one of the company’s directors, in his personal name, and presented for payment. The cheque for ₹4.40 lakhs bounced due to insufficient funds, following which the director filed a complaint under Section 138 NI Act in his personal capacity.
Issues:
- Whether the complaint under Section 138 NI Act can be maintained by a director in his personal capacity when the transaction was between two companies.
- Whether there existed a legally enforceable debt or liability against the complainant.
- Whether the cheque was issued in discharge of a valid debt when the contract itself was not executed.
Petitioner’s Arguments:
The petitioner submitted that the agreement was between two companies, not with the director in his personal capacity. He contended that ₹5 lakhs was already paid and a blank cheque issued as security was misused by the director. He argued that there was no board resolution or power of attorney authorising the director to file a complaint, making the complaint non-maintainable. It was further contended that the director altered payment terms unilaterally in the agreement.
Respondent’s Non-Appearance:
Despite general notice, the opposite party did not appear before the court. The matter was heard ex parte.
Analysis of the Law:
The Court analysed the distinction between authorised and unauthorised complaints in corporate transactions and emphasised that even if a director is a payee, without authorisation from the Board or through power of attorney, the complaint is not maintainable. The Court found that even if such defects are curable, the company took no steps to rectify the lapse at any stage.
Precedent Analysis:
- A.C. Narayanan v. State of Maharashtra, (2014) 11 SCC 790 – Held that a power of attorney holder cannot file a complaint in his own name and must act only on behalf of the principal.
- John K. Abraham v. Simon C. Abraham, (2014) 2 SCC 236 – Established that vague or unsubstantiated claims of liability do not meet the threshold for Section 138 conviction.
- Indus Airways Pvt. Ltd. v. Magnum Aviation Pvt. Ltd., (2014) 12 SCC 539 – Held that advance cheques issued without a subsisting liability cannot give rise to criminal liability under Section 138.
- MMTC Ltd. v. Medchl Chemicals, (2002) 1 SCC 234 – Recognised that authorisation defects can be cured but such rectification was absent here.
Court’s Reasoning:
The Court held that there was no direct legal liability between the petitioner and the complainant in his personal capacity. The agreement was between companies, and the complainant failed to demonstrate authorisation or legal standing to initiate proceedings. The cheque issued as security was misused by being filled in the complainant’s name. Furthermore, the evidence of hasty cheque issuance within three days of agreement and lack of clarity on work execution cast doubt on the genuineness of the transaction.
Conclusion:
The Court allowed the revision, set aside the conviction and sentence, and quashed the complaint. It directed the trial court to take necessary steps in accordance with this judgment.
Implications:
This decision reinforces the principle that personal capacity and company capacity must be strictly separated in negotiable instrument prosecutions. Directors must act through proper corporate authorisation, and cheques issued as security without clear, enforceable liability cannot attract criminal sanction under Section 138 NI Act.
