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Substance over Form while suing on behalf of the Company

March 30, 2022
Hon’ble Supreme Court

By Nihit Nagpal and Manmeet Singh Marwah

A mere technical defect in the format of filing the Complaint does not make the Complaint defective in nature. The Hon’ble Supreme Court on November 10, 2021, in the case of Bhupesh Rathod V. Dayashankar Prasad Chaurasia & Anr.[1], held that even if format of the Complaint is not flawless, the Complaint cannot be said to be flawed. The Apex Court in this case held that there is no fundamental defect in the Complaint if the name of the Company is not mentioned first when suing through its Managing Director. The Court elaborated on the manner in which a Company can file a Complaint under Section 138[2] of Negotiable Instruments Act, 1881, with respect to dishonor of cheque and the rejection of punishment merely because the name of the Managing Director appears before the name of the Company.

BRIEF FACTS

Respondent (Dayashankar Prasad Chaurasia) had issued eight cheques of INR 20,000/- each in favour of M/s Bell Marshall Telesystems Ltd. (the ‘Company’), amounting to a total of INR 1,60,000/-. The cheques issued were of different dates but were presented together for payment on May 10, 2006. On May 12, 2006 a memo was issued from the bank stating that all the cheques got dishonoured by the reason of ‘insufficient funds’ in the account. On this account the beneficiary issued legal notices under Section 138(b) of the Negotiable Instruments Act, 1881, on May 26, 2006. Neither the demand for the same was met within the stipulated fifteen days, nor was there any reply from the Respondent. This resulted in a Complaint by Mr. Bhupesh Rathod (Appellant) before the Special Metropolitan Magistrate, Mumbai, on July 7, 2006. The said Complaint was accompanied by a Board Resolution dated May 17, 2006, authorizing Mr. Bhupesh to initiate a legal action against Mr. Dayashankar on behalf of the Company. The Company, through its Managing Director Mr. Bhupesh, filed an affidavit on December 12, 2007, stating that the Company had authorized its Managing Director Mr. Bhupesh through its Board Resolution to initiate proceedings against Mr. Dayashankar. The Complaint was made saying that INR 1,60,000/- was advanced to the Respondent for the payment of which the cheques were issued. The following was reproduced as the description of the complainant:

“Mr. Bhupesh M. Rathod

Managing Director of M/s. Bell Marshall Telesystems Ltd.

Aged: 41 years, Occupation: Business

Having address at 1107, Maker Chamber, Nariman Point Mumbai- 400021.”

On this the Respondent took the objection that the Complaint was filed by Mr. Bhupesh in his personal capacity and not on behalf of the Company. Further to this the Respondent also contended that only the title description states Mr. Bhupesh to be the Managing Director of the Company, whereas the body of the Complaint does not mention the same. In response to this the Appellant said that the Complaint was made in the name of the Company and the cause title describes him as the Managing Director of the Company. The trial Court on March 12, 2009 acquitted Mr. Dayashankar saying that there was no document other than the promissory note that was signed by Mr. Dayashankar to prove the loan was granted. The Court further said that the Board resolutions itself were not signed by the Board of Directors.

Mr. Bhupesh preferred an appeal in the High Court of Bombay but the same was dismissed on August 3, 2015. The High Court giving its reasons to dismiss the appeal said that the Complaint was not filed by the payee in due course as under Section 142(a)[3] of the Negotiable Instruments Act, 1881. The Court also said that the Complaint did not show that the Complaint was filed by the Company, rather it was filed by the Appellant who in the cause title only described himself as the Managing Director of the Company. The Court further said that probably a cognizant choice was made to not file the Complaint in the name of the Company as it was not clear that whether the Company had the authority to advance loans or not.

The Appellant then preferred an appeal to the Hon’ble Supreme Court of India in the same matter. The main issue that the Court was struck with was that the Complaint was not filed by the competent complainant as the case was for the advancement of loan by a Company.

Judgment by the Apex Court

The Hon’ble Supreme Court observed that if a Complaint was made on behalf of the Company, it is inevitable that a natural person represents a legal entity in the Court, and the Court confide in the natural person for all practical purposes. The Court also observed that a Company is a de jure complainant and the natural person is a de facto complainant and thus no Court can allege that the person whose statement was taken on oath can alone continue to represent a Company till the end of the Court proceeding, the Company may, at any point of time, rectify the defect related to authority by presenting the competent person in Court. A Managing Director or a manager of a Company is generally considered to be the person who is in-charge of the Company’s day-to-day affairs, and management and also has powers to take decisions with respect to judicial proceedings before the Court. The Apex Court also observed that it will be too technical to hold the defect in the Complaint merely because the body of the Complaint does not give anything in detail about the authorization. A Company being an artificial person has to act through a natural person, such as the Managing Director or the Chairman. The presence of authorization should only be verified.

The Hon’ble Supreme Court, in this case, noted that the Respondents here have not disputed his signatures on the cheques. The Respondents also did not show why the cheques were handed over to the Company and also there was no plea taken by them for fraud or misrepresentation. Other than technical objections, nothing on a substantive aspect was put forth. The Court said that the Respondents only took technical plea to evade their liability.

The Hon’ble Court relied on the case Associate Cement Co. Ltd. V. Keshavanand[4] and also on M. M. TC Ltd. & Anr. v. Medchl Chemicals and Pharma (P) Ltd. & Anr.[5] to state that the judicial precedents had been breached by the Courts below and that the High Court had not been required to go into the discussion of ambiguity on the identity of the Complainant and its relationship with the legality of loan granted by the Company. The Court further said that there is no fundamental defect in the Complaint if the name of the Managing Director is stated before his/her post held in the Company. The format cannot be said to be defective even though it may not be perfect. Therefore it can be said that the Complaint was filed on behalf of the Company.

The Hon’ble Supreme Court held that the findings of the lower Courts as to lack of authorization to depose, stands nullified. The orders of Trial Court and the High Court need to be set aside. The Complaint was properly instituted by the Appellants. The Respondent had failed to disclose the reason for not meeting his financial liability arising to the payee (Appellants), who was the holder of the cheque in due course. The Apex Court further stated that the Respondents were liable to pay INR 3,20,000/- fine and was also liable for imprisonment of one year. The Court also stated that if the Respondents paid an extra sum of INR 1,60,000/- to the Appellants, the sentence of imprisonment would stand suspended.

Conclusion

This judgement set out that only because the format of filing of the Complaint was not perfect, the Complaint cannot be said to be defective. It is too technical to view the Complaint as defective merely on the ground that the name of the Managing Director is written before his/her post held in the Company.

When a Complaint is filed by a Company, a natural person represents that Company before the Court and the Company has the discretion to choose any person to represent them. The authorization in favour of a person should only be verified by the Court and there is no need to elaborate on the same in the Complaint.

[1] Criminal Appeal No. 1105 of 2021; LL 2021 SC 633

[2]Section 138 of The Negotiable Instruments Act, 1881 – Dishonour of cheque for insufficiency, etc., of funds in the account.— Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for [a term which may be extended to two years’], or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless— (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier; (b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice; in writing, to the drawer of the cheque, [within thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and  (c) the drawer of such cheque fails to make the 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 fifteen days of the receipt of the said notice. Explanation.—For the purposes of this section, “debt of other liability” means a legally enforceable debt or other liability.

[3] Section 142(a) of The Negotiable Instruments Act, 1881 – Cognizance of offences.— [(1)] Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),—  (a) 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; (b) such Complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to section 138: [Provided that the cognizance of a Complaint may be taken by the Court after the prescribed period, if the complainant satisfies the Court that he had sufficient cause for not making a Complaint within such period;]  (c) no Court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under section 138.].  [(2) The offence under section 138 shall be inquired into and tried only by a Court within whose local local jurisdiction,— (a) if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course, as the case may be, maintains the account, is situated; or (b) if the cheque is presented for payment by the payee or holder in due course, otherwise through an account, the branch of the drawee bank where the drawer maintains the account, is situated. Explanation.—For the purposes of clause (a), where a cheque is delivered for collection at any branch of the bank of the payee or holder in due course, then, the cheque shall be deemed to have been delivered to the branch of the bank in which the payee or holder in due course, as the case may be, maintains the account.]

[4] Criminal Appeal No. 1239 of 2021; (1998) 1 SCC 687

[5] Criminal Appeal No. 1173-1174 of 2001; (2002) 1 SCC 234

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