S.138 NI Act | Only Payee Or Holder In Due Course Can File Complaint; 3rd Party Lacks Locus Even If Transaction Affects Him: Allahabad HC

The bench of Justice Samit Gopal added that an authorised representative of the payee or holder of the cheque can initiate proceedings, being the power of attorney holder or the authorised signatory of the company, but the complaint is still to be in the name of the payee or holder of the cheque.

Case in brief

A complaint filed on August 8, 2012, by M/s. Krishna Hotels and Developers, through its partner, Saroj Dubey. It alleged that one Rajesh Kukreja, Director of Mangalam Restaurant and Hotel Pvt. Ltd., had committed offences under Section 138 NI Act and Sections 406 and 420 IPC after eleven cheques, totalling ₹22 lakhs, were dishonoured.

While the complaint was filed by M/s. Krishna Hotels, all eleven cheques had been drawn in favour of 'Hotel Paradise'.

Initially, the Metropolitan Magistrate in Kanpur Nagar questioned the complainant's locus standi. However, in July 2013, the trial court summoned Kukreja, accepting the complainant's assertion that Hotel Paradise was a unit of M/S Krishna Hotels and Developers.

This summoning order was subsequently challenged before the HC by Kukreja.

It was primarily argued by the revisionist that since cheques in issue were drawn in the name of Hotel Paradise, the complaint should have been filed by it or its authorised agent and that M/s Krishna Hotels and Developers, through its partner, had no locus to file the complaint.

On the other hand, the original complainant (opposite no. 2) submitted that 'Hotel Paradise' was given for marketing purposes, on the condition that 50% of the total annual turnover would be paid to the opposite party. 2.

It was further submitted that the opposite party no. 2 is the partner of Hotel Paradise, who entered into an oral contract with the revisionist for business purposes, and thus she has a locus to file the complaint.

High Court's observations

Justice Samit Gopal perused Section 142 of the NI Act, which governs the cogniZance of offences and noted that the Act explicitly mandates that "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".

The Court explained that, under Sections 7 and 9 of the Act, a Payee is the person named in the instrument to whom the money is directed to be paid, and a Holder in Due Course is a person who lawfully possesses the cheque for consideration and is entitled to the amount.

Thus, the court concluded that a complaint under Section 138 NI Act is not maintainable by a third party and that it must be filed by the payee or the holder in due course of the cheque

The Court further clarified that even if a person is "indirectly affected" by the transaction, they remain a stranger to the legal requirements of Section 138 if they do not qualify as the payee or holder in due course.

Thus, the bench found that Saroj Dubey and M/s. Krishna Hotels had no locus to file the present complaint since the cheques were drawn in favour of a different entity (Hotel Paradise).

The bench thus allowed the revision plea.