LOCUS STANDI TO FILE COMPLAINT UNDER NEGOTIABLE INSTRUMENTS ACT WHERE THE PAYEE IS A PROPRIETARY CONCERN

[Mr. M. GOVINDARAJAN]

                        Section 138 of Negotiable Instruments Act, 1881 (‘Act’ for brevity) provides for penalties in case of dishonor of certain cheques for insufficiency of funds in the accounts.  If the drawer of the cheque fails to make the payment to the payee or, as the case may be, to the holder in due course of the cheque within fifteen days of the receipt of the notice then the payee may make a complaint before the court.  Section 142 provides for taking cognizance of the offence notwithstanding anything contained in Criminal Procedure Code which reads as ‘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.’    Thus the payee or the holder in due course of the cheque may file complaint after issuing due notice to the drawer of the cheque.

                        Section 7 of the Act defines the term ‘payee’ as the person named in the instrument, to whom or to whose order the money is by the instrument directed to be paid.   Section 8 defines the terms ‘the holder of the cheque’ as any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto.   Section 9 defines ‘holder in due course’ as any person who for consideration became the possessor of a cheque if payable to a bearer or the payee or endorsee thereon.  In ‘Janki Vashdeo Bhojwani V. Indusind Bank Ltd.,’ (2005) 2 SCC 217, the Supreme Court held that the general principles of company law or civil law would apply for maintaining the complaint under Section 138 of the Act.  In ‘National Small Industries Corporation Limited V. State (NCT of Delhi)’ – (2009) 1 SCC 407 the Supreme Court held that the term ‘complainant’ is not defined under the Code.  Section 142 of the Negotiable Instruments Act requires a complaint under Section 138 of that Act to be made by the payee (or by the holder in due course).   Thus the law stands crystallized to the effect that a person can maintain a complaint provided he is either a ‘payee’ or ‘holder in due course’

                        In case of a proprietary concern the complaint can be held as held by Supreme Court in ‘Shankar Finance & Investments V. State of Andhra Pradesh’ – (2008) 8 SCC 536-

• By the proprietor of the proprietary concern describing himself as the sole proprietor of the ‘payee’;
• The proprietary concern describing itself as the sole proprietary concern represented by the proprietor; and
• The proprietor or the proprietary concern represented by the attorney holder under the power of attorney executed by the sole proprietor

 

However, it shall not be permissible for an attorney holder to file the complaint in his own name as if he was the complainant.   He can initiate criminal proceedings on behalf of the principal.

                        In ‘Milind Shripad Chandurkar V. Kalim M Khan and another’ – (2011) 102 CLA 128 (SC) the Supreme Court elaborately discussed in regarding who can file complaint in respect of proprietary concern.  In this case the appellant claimed to be the sole proprietor of the firm, namely, Vijaya Automobiles.   The same deals with the business of supplying fuel.  It had supplied a huge quantity of diesel to respondent No. 1 in the month of March 2005.   The respondent No. 1, in order to meet the liability, issued a cheque dated 28.04.2005 in the name of the said proprietary firm drawn on Development Credit Bank, Kurla Branch, Bombay for Rs.7 lakhs.   The appellant deposited the said cheque in the account of the firm in Bank of India, Uran Branch on 12.09.2005.   The cheque was returned with remarks ‘funds are insufficient’. 

                        The appellant issued a notice dated 11.10.2005 by registered AD post as well as under the certificate of posting.   The registered post was not claimed but the post sent by certificate of posting was served on the respondent which was duly admitted by him.  But the respondent No.1/accused did not reply to the notice or make payment within 15 days of the receipt of the notice.   The appellant, therefore, filed a complaint before the Judicial Magistrate, I Class, Uran under Section 138 of the Act on 22.11.2005.   The case was tried by the respondent.   But he did not enter the witness box.  The Court on 22.12.2006 convicted the respondent No.1 to suffer simple imprisonment till rising of the Court and to pay compensation of Rs.7,10,000/- out of which a sum of Rs.10,000/- was to be credited to Registered District Legal Aid Committee.  If there is default in payment the accused is to suffer simple imprisonment for six months.    The trial court held that the complaint

                        The respondent being aggrieved by the said order filed appeal.   The Sessions Judge in his order dismissed the said appeal and reduced the compensation to Rs.7,00,000/- instead of Rs.7,10,000/-.  The respondent filed Criminal Revision Application before the High Court which has been allowed by its order dated 18.02.2008 on the ground that the appellant could not produce any evidence to establish that he was the sole proprietor of the proprietary concern in question.  Against this order the appellant filed the present appeal.

                        The Supreme Court after hearing both parties observed the following:

• All the three courts below have dealt with the issues elaborately and recorded the following findings of fact:

• The cheque had been issued by the respondent No.1 in favour of the Firm concerned towards discharge of pre-existing liability and not as security;
• The substantive sentence of imprisonment in default of payment could be imposed.

So far as the findings of the aforesaid two issues are concerned the same are not under challenge.  It was also accepted by both parties;

• The only issue involved is as to whether the appellant owns the said firm.   The trial court as well as the appellate court has held that a sole proprietary concern is no independent legal entity and its identity remains inseparable from its proprietor.   But it merely remains a legal proposition.   None of the said courts held that the appellant was the sole proprietor of the said firm;
• The High Court has set aside the judgments of the trial court as well as the appellate court in revision only on the ground that as the appellant did not produce any evidence to show that he was the proprietor of the firm, he has no locus standi to file the complaint;
• The appellate court has noted that perusal of the cross examination indicated that the appellant did not produce any documentary evidence to show that he was the proprietor of Vijaya Automobiles.   It was admitted by the appellant in the cross examination that he did not have any documentary evidence to show that the complainant was the owner of the petrol pump.   In spite of the aforesaid observations, the appeal was dismissed on the ground that the diesel had been supplied to the respondent and the said respondent had issued the cheque to meet the liability, which could not be encashed for want of funds.   All other requirements in law, i.e., issuance of notice etc., also stood completed;
• The appellant did not make any attempt to adduce additional evidence at the appellate stage also.   No document has even been filed to substantiate his averment in this regard

The Supreme Court held that in this case the firm, Vijaya Automobiles has been the payee and that the appellant cannot claim to be the payee of the cheque, nor can he be the holder in due course, unless he establishes that the cheques had been issued to him or in his favor or that he is the sole proprietor of the concern and being so, he could also be payee himself and, thus, entitled to make the complaint.  The appellant miserably failed to prove any nexus or connection by adducing any evidence, whatsoever, worth the name with the said firm, namely, Vijaya Automobiles.   Mere statement in the affidavit in this regard, is not sufficient to meet the requirement of law.   The Supreme Court, therefore, did not find any cogent reason to interfere with the impugned judgment and order of the High Court.   The Supreme Court dismissed the appeal.