M.M.T.C. Ltd v Medchl Chemicals & Pharma (P) Ltd (2001)

Two propositions of constant practical use in cheque-dishonour cases:

1. Who may complain. Section 142 says a complaint under s. 138 may be made by the payee or the holder in due course. Where the payee is a company, the complaint is the company's; the person who signs and presents it is only the company's mouthpiece, and technical objections about board authorisation cannot defeat it.
2. When a complaint may be quashed. The presumption under s. 139 is that the cheque was issued for a debt or liability. A High Court exercising inherent powers cannot, at the threshold, decide that there was no debt and quash the complaint. That is a matter for trial.

The appellant, M.M.T.C. Ltd, is a Government of India company with a Regional Office at Chennai. The first respondent was a company; the second and third respondents its directors.

Under a Memorandum of Understanding of 1 June 1994, altered on 19 September 1994, the first respondent issued two cheques in the appellant's favour — one dated 31 October 1994 for Rs. 20,26,995 and one dated 10 November 1994 for Rs. 22,10,156.

Both were returned with the endorsement "payment stopped by drawer". Notices were served; the amounts were not paid; the appellant lodged two complaints under s. 138 through Lakshman Goel, the Manager of its Regional Office.

The respondents petitioned to quash, and the High Court quashed both complaints, holding that a complaint on behalf of a company must be signed by a person authorised by the Board, and that the complaint had not alleged a subsisting liability.

A telling piece of history: four other dishonoured cheques between the same parties had produced four further s. 138 complaints, also lodged by Lakshman Goel. There the Magistrate discharged the respondents on identical grounds — and the High Court allowed the appellant's revision, holding that "the Magistrate had erred in holding that the complaints filed by Lakshman Goel were not maintainable", restored the complaints and directed trial. The respondents' SLPs against that were dismissed. So the High Court had already decided the same point the other way between the same parties.

1. Must a complaint under s. 138 on behalf of a company be signed by a person expressly authorised by the Board, failing which it is a nullity?
2. Must the complaint specifically allege a subsisting liability and an enforceable debt?
3. May the High Court, exercising inherent powers, decide at the threshold that the cheques were issued as security and quash the complaint?

Appeals allowed; the complaints were restored.

The complainant is the company

The High Court had reasoned that "a complaint under Section 138 of the Negotiable Instruments Act can be filed for and on behalf of a Body such as Corporation, who has only artificial existence through a particular mode and when that mode is not followed, any proceedings initiated or any complaint filed will be vitiated from its very inception", and that the Manager was "neither an authorised agent nor a person empowered under the articles of Association or by any resolution of the Board".

The Supreme Court held: "In our view the reasoning given above cannot be sustained. Section 142 of the Negotiable Instruments Act provides that a complaint under Section 138 can be made by the payee or the holder in due course of the said cheque. The two complaints, in question, are by the appellant Company who is the payee of the two cheques."

No need to plead the debt specifically

The High Court had said: "It is necessary to allege specifically in the complaint that there was a subsisting liability and an enforceable debt and to discharge the same, the cheques were issued. But, we do not find any such allegation at all. The absence of such vital allegation, considerably impairs the maintainability."

That is wrong, because of the statutory presumption. Following Maruti Udyog Ltd v Narender (1999) 1 SCC 113, "by virtue of Section 139 of the Negotiable Instruments Act, the Court has to draw a presumption that the holder of the cheque received the cheque for discharge of a debt or liability until the contrary is proved", and "at the initial stage of the proceedings the High Court was not justified in entertaining and accepting a plea that there was no debt or liability and thereby quashing the complaint." The same view was taken in K.N. Beena v Muniyappan 2001 (7) SCALE 331.

Hence: "There is therefore no requirement that the Complainant must specifically allege in the complaint that there [was a subsisting debt or liability]."

The limits of the power to quash

"In so doing the learned Judge has ignored well settled law that the power of quashing criminal proceedings should be exercised very stringently and with circumspection. It is settled law that at this stage the Court is not justified in embarking upon an enquiry as to the reliability or genuineness or otherwise of the allegations made in the complaint. The inherent powers do not confer an arbitrary jurisdiction on the court to act according to its whim or caprice. At this stage the Court could not have gone into merits and/or come to a conclusion that there was no existing debt or liability."

A complaint under s. 138 is maintainable where it is by the payee or holder in due course; where the payee is a company, the absence of a board resolution authorising the particular signatory does not by itself vitiate it. By reason of the presumption in s. 139, the complaint need not specifically plead a subsisting debt or liability, and a court exercising inherent powers may not, at the threshold, decide that no debt existed and quash the complaint.

• Direct question: Who may file a complaint under section 138? Discuss. Section 142 — payee or holder in due course; a company complains through a representative; this case for the proposition that the authorisation objection is not fatal.
• On the presumption: s. 139 shifts the burden to the drawer. State it as a rebuttable presumption to be displaced at trial, not at the quashing stage — and cite Maruti Udyog and K.N. Beena alongside.
• On quashing generally: the passage on inherent powers is quotable in Criminal Procedure too — exercise "stringently and with circumspection", no enquiry into reliability or genuineness at that stage.
• Worth noticing: the same High Court had already upheld the same complainant's standing in the parallel four complaints. Inconsistent treatment of the same parties on the same point is itself a ground of criticism.