Supreme Court Clarifies Procedural Requirements Under Section 138 of the NI Act

Introduction:

In a pivotal judgment, the Supreme Court of India has reinstated criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881 (NI Act), reversing an order of the Allahabad High Court. The case, M/s Naresh Potteries v. M/s Aarti Industries, serves as an important precedent for understanding the procedural requirements of filing complaints in cheque dishonor cases.

Factual Background:

M/s Naresh Potteries, a firm dealing in crockery and polymer insulators, supplied goods worth ₹1.7 crore to M/s Aarti Industries. Payment was attempted via a cheque dated July 10, 2021, but the cheque was dishonored due to insufficient funds. Despite serving a statutory notice, the payment was not made, prompting the appellant to file a complaint under Section 138 of the NI Act. The complaint was filed through Neeraj Kumar, the authorized manager of the firm.

The High Court, however, quashed the proceedings, reasoning that Kumar, acting under a Letter of Authority, lacked personal knowledge of the transaction and did not meet the requirements for filing the complaint.

Supreme Court’s Observations:

The Supreme Court addressed two critical aspects in its analysis:

1. Representation by Authorized Agents: The court reaffirmed that a complaint under Section 138 of the NI Act can be filed by an authorized agent of the payee, provided the representative has sufficient knowledge of the transaction.
2. Relevance of Personal Knowledge: Referring to precedents like A.C. Narayanan v. State of Maharashtra and TRL Krosaki Refractories Ltd. v. SMS Asia Pvt. Ltd., the court held that explicit assertions regarding the agent’s personal knowledge are sufficient, even if not stated in a specific manner.

The court highlighted that Neeraj Kumar was authorized by the firm’s proprietor to act on her behalf. His role as the manager, responsible for day-to-day operations, was sufficient to satisfy the requirements of personal knowledge.

Legal Principles Reaffirmed:

The judgment underscores key principles relevant to legal practice:

1. Authorized Representation: The person filing a complaint need not be the payee but must act on behalf of the payee with proper authorization.
2. Scope of Section 482 Cr.P.C.: High Courts should exercise caution when quashing complaints at the threshold. Issues like authorization and knowledge are best left to be determined during the trial.
3. Role of Procedural Compliance: The court clarified that procedural lapses, if rectifiable during the trial, should not result in dismissal at the preliminary stage.

Final Verdict

The Supreme Court quashed the High Court’s order and restored the complaint to the trial court for adjudication on its merits. It emphasized that inherent powers under Section 482 Cr.P.C. should not interfere with fair trials unless warranted by exceptional circumstances.

Implications:
This judgment is a valuable resource for understanding procedural aspects of cheque dishonor cases, particularly the interplay between substantive rights under the NI Act and procedural safeguards under the Cr.P.C. It also serves as a reminder of the judiciary’s role in balancing technical compliance with substantive justice.

References

1. Negotiable Instruments Act, 1881 – Section 138 and Section 142.
2. A.C. Narayanan v. State of Maharashtra, (2014) 11 SCC 790.
3. TRL Krosaki Refractories Ltd. v. SMS Asia Pvt. Ltd., (2022) 7 SCC 612.
4. National Small Industries Corporation Ltd. v. State (NCT of Delhi), (2009) 1 SCC 407.
5. Samrat Shipping Co. Pvt. Ltd. v. Dolly George, (2002) 9 SCC 455.
6. Section 482, Code of Criminal Procedure, 1973.