Complaint by Company's Manager under S.138 NI Act Can't Be Quashed at Threshold for Lack of 'Specific' Knowledge Averment: Supreme Court - 2025-07-03

Manager's Knowledge Sufficient for Cheque Bounce Complaint, Quashing at Threshold Unwarranted: Supreme Court

New Delhi – In a significant ruling clarifying the procedural requirements for cheque bounce cases filed by companies, the Supreme Court has held that a complaint under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) cannot be quashed at the initial stage merely because the authorised employee representing the company did not use specific magical words to assert personal knowledge of the transaction.

A bench comprising Justice B.R. Gavai and Justice K.V. Viswanathan set aside a judgment of the Allahabad High Court which had quashed a criminal complaint in a Rs 1.70 crore cheque dishonour case. The Court ruled that the issue of proper authorisation and the extent of an employee's knowledge are matters for trial, and quashing proceedings under Section 482 of the Cr.P.C. on such grounds is an improper exercise of inherent powers.

Case Background

The dispute arose between M/s Naresh Potteries (appellant) and M/s Aarti Industries (respondent). Naresh Potteries supplied goods worth Rs. 1,70,46,314/- to Aarti Industries , for which a cheque was issued. The cheque was dishonoured with the remark "exceeds arrangement."

Consequently, the proprietor of Naresh Potteries, Smt. Shakti Khanna, authorised her manager, Sh. Neeraj Kumar , to file a criminal complaint under Section 138 of the NI Act. The complaint was filed, and the trial court issued a summoning order against the proprietor of Aarti Industries . However, Aarti Industries approached the Allahabad High Court, which quashed the entire proceedings. The High Court's reasoning was that the complaint and supporting documents lacked a specific averment that the manager, Neeraj Kumar , had personal knowledge of the transactions, a flaw it deemed fatal based on the precedent in A.C. Narayanan v. State of Maharashtra .

Arguments Before the Supreme Court

Counsel for Naresh Potteries argued that the High Court had misapplied the law. It was contended that Sh. Neeraj Kumar , as the firm's manager responsible for its day-to-day affairs, had explicitly stated in multiple documents, including his affidavit, that he was "well-conversant with the facts and circumstances of the case." It was argued that this was sufficient to establish a prima facie case, and the complaint should not have been dismissed on a technicality.

Despite being served notice, M/s Aarti Industries did not appear before the Supreme Court to defend the High Court's order.

Distinction Between Individual and Corporate Complainants

The Supreme Court undertook a detailed analysis of the law, distinguishing between complaints filed by an individual via a power of attorney holder and those filed by a corporate entity through an authorised employee. The bench heavily relied on its earlier three-judge bench decision in TRL Krosaki Refractories Limited v. SMS Asia Private Limited .

The Court reiterated that when a company is the payee, the complaint must be in the company's name, represented by an authorised person. The judgment emphasized a key distinction:

"The position that would emerge is that when a company is the payee of the cheque..., the complainant necessarily should be the company which would be represented by an employee who is authorised. Prima facie, in such a situation the indication in the complaint and the sworn statement (either orally or by affidavit) to the effect that the complainant (Company) is represented by an authorised person who has knowledge, would be sufficient."

The Court clarified that the strict requirement of an "explicit" assertion of knowledge laid down in A.C. Narayanan (which involved an individual complainant) cannot be applied rigidly to corporate complainants.

Pivotal Excerpts from the Judgment

The bench observed that the documents on record were sufficient to show that the manager was duly authorised and had the requisite knowledge:

"A conjoint reading of the above would make it clear that it had been categorically averred that the sole proprietor of the appellant-firm had duly authorized Sh. Neeraj Kumar to act on its behalf in view of the fact that Sh. Neeraj Kumar was in-charge of the day-to-day affairs of the appellant-firm and as such had personal knowledge of the facts of the matter."

Criticizing the High Court's approach, the Supreme Court stated:

"As such, a peremptory quashing of the complaint case by the High Court is completely unwarranted and that too on an incorrect factual basis... The issue of proper authorisation and knowledge can only be an issue for trial."

Final Decision and Implications

The Supreme Court allowed the appeal, quashing the High Court's order and restoring the complaint to the file of the Additional Chief Judicial Magistrate, Khurja. The trial court was directed to proceed with the case on its merits.

This judgment provides crucial clarity for corporate litigation, particularly under the NI Act. It protects bona fide complaints filed by companies from being dismissed at the threshold on hyper-technical grounds. The ruling affirms that as long as the complaint and accompanying documents indicate that the representing employee is authorised and familiar with the facts, the magistrate is justified in taking cognizance. Any challenge to the employee's authority or knowledge must be raised and proven during the trial.