In a significant decision, the Supreme Court has reinstated a cheque dishonour case, asserting that concerns over representation and knowledge in complaints filed by companies are issues to be resolved during trial, not at the preliminary stage.
Case Background
The case, M/s Naresh Potteries v. M/s Aarti Industries and Another (Criminal Appeal No. ___ of 2025), revolved around a dispute under Section 138 of the Negotiable Instruments Act, 1881 (NI Act). M/s Naresh Potteries, a manufacturing firm dealing in crockery and insulators, alleged that M/s Aarti Industries, represented by its sole proprietor, Sunita Devi, issued a cheque for ₹1,70,46,314 as payment for materials purchased. The cheque, however, was dishonoured with the bank citing “exceeds arrangement.”
After issuing a legal notice demanding payment, M/s Naresh Potteries filed a complaint under Section 138 of the NI Act. The complaint was filed through the company’s manager and authorized representative, Neeraj Kumar, who was entrusted with the day-to-day operations and transactions of the firm.
High Court Decision
The High Court of Allahabad quashed the complaint, concluding that the complainant’s representative, Neeraj Kumar, lacked specific averments of personal knowledge regarding the transaction. The High Court cited procedural deficiencies, particularly the absence of explicit statements affirming Kumar’s direct involvement in or knowledge of the transaction, as grounds for dismissal.
Supreme Court’s Verdict
A bench comprising Justice B.R. Gavai and Justice K.V. Viswanathan reversed the High Court’s decision, emphasizing that issues of representation and personal knowledge are not grounds for quashing complaints at the initial stage. The Court clarified that such concerns are best resolved during trial, where evidence can be thoroughly examined.
“Concerns regarding the complainant’s authorization and knowledge of the transaction must be tested at trial, not used as grounds for premature dismissal,” the Court stated.
Key Observations
1. Authority to Represent the Company
The Supreme Court reiterated that companies can be represented by authorized individuals, such as employees or power of attorney holders, provided they possess sufficient knowledge of the transaction. It noted that the complaint, in this case, was filed in the name of the payee, M/s Naresh Potteries, and supported by its authorized representative.
The Court emphasized, “The requirements of Section 142 of the NI Act are satisfied when the complaint is filed in the payee’s name and supported by an authorized person with knowledge of the transaction.”
2. Premature Quashing Under Section 482 CrPC
The Court expressed concern over the frequent misuse of Section 482 of the Criminal Procedure Code (CrPC) to quash legitimate complaints at an early stage. It held that the High Court’s dismissal of the case without a detailed examination of the evidence or adherence to settled legal principles was improper.
“Inherent powers under Section 482 must be exercised sparingly and with caution, particularly when the complaint establishes a prima facie case,” the bench observed.
3. Interpretation of Procedural Requirements
Relying on precedents such as A.C. Narayanan v. State of Maharashtra and TRL Krosaki Refractories v. SMS Asia Pvt. Ltd., the Court emphasized that explicit averments of knowledge should not be rigidly construed. Instead, courts should holistically examine the complaint and supporting documents to determine if the procedural requirements are met.
The Court further stated, “Dismissal of complaints at the threshold due to perceived procedural deficiencies undermines the legislative intent of Section 138 of the NI Act.”
The Supreme Court allowed the appeal and set aside the High Court’s order. It restored the complaint to the file of the Additional Chief Judicial Magistrate, Khurja, for adjudication on its merits. The bench directed the trial court to proceed in accordance with the law, ensuring a fair trial for all parties involved.
Parties and Representation
– Appellant: M/s Naresh Potteries, represented by Neeraj Kumar (manager and authorized representative).
– Respondents: M/s Aarti Industries (Respondent No. 1), represented by sole proprietor Sunita Devi, and Central Bank of India (Respondent No. 2).
– Counsel for Appellant: Mr. Navin Pahwa, Senior Advocate.
– Counsel for Respondents: Mr. Shailesh Sharma for Respondent No. 2. Respondent No. 1 remained unrepresented despite being duly served.
