Manager Of Firm Cannot Prosecute U/S 138 NI Act In Personal Capacity If 'Payee' Of Cheque Is Firm: Kerala High Court

The Kerala High Court has clarified the position of law under the Negotiable Instruments Act, 1882 (NI Act) that a manager of a firm cannot prefer a complaint or prosecute in his personal capacity under Section 138 if the payee of the cheque was the firm.The judgment was passed by Justice A. Badharudeen while considering a Criminal Appeal preferred by the complainant-manager challenging the acquittal of the accused person by the trial court. The complainant in this case was the manager of the Perinthalmanna branch of the firm, Kerala Roadways Ltd. He filed a complaint pursuant to dishonour of a cheque or Rs.65,000/- issued by the accused in favour of Kerala Roadways Ltd. The trial court took cognizance for the offence punishable under Section 138 of the NI Act and proceeded with trial.The trial court gave two reasons for acquitting the accused. One, that no legal notice was sent during the stipulated time. Two, that the prosecution of the case was by the Manger of the firm in his personal capacity even though the cheque was issued towards the money due towards Kerala Roadways Limited and not pertaining to any personal liability of the complainant.The learned Single Judge mainly considered the issue of “whether it is legally permissible for the manager of a firm or company or a concern to sue in his individual capacity for the money due towards the firm, company or the concern?”The Court referred to Sections 7 [definition of 'payee'], 8 [definition of 'holder'], 9 [definition of 'holder in due course'], 138 [dishonour of cheque] and 142(1)(a) [cognizance of offences] of the NI Act to answer the question.According to the Court, a combined reading of the aforesaid provisions inevitably leads to the conclusion that the competent person to make a complaint alleging commission of offence punishable under Section 138 of the N.I Act is the `payee' or `the holder in due course' of the cheque.The Court reached the finding that the manager would not come within the purview of the term 'payee' since the amount of consideration is not personally due to him. The consideration of the cheque is due to Kerala Roadways Limited and the same was issued to it.It clarified the position of law with respect to who a 'payee' is:“…The legal position is so clear that when a cheque is issued by a person in favour of a firm, company or concern, the `payee' thereof is the firm, company or concern and the holder in due course is also the firm, company or concern, when the firm or company or concern alone is entitled to receive the money, i.e. the possessor of the cheque legally is entitled to get the consideration…”In regards to the role of a manager/authorised officer of firm, company or concern, the Court observed as follows:“When an authorised officer representing the company is doing such exercise the same is for and on behalf of the firm, company or concern and not on his personal capacity. Therefore, in such cases in order to succeed a prosecution alleging commission of offence punishable under Section 138 of the N.I Act, when a cheque issued in favour of the firm, company or concern was dishonoured, the firm, company or concern must be the complainant being `payee' or `the holder in due course', though the firm, company or concern can be represented by an officer, who is legally authorised to represent the firm, company or concern, after arraying the firm, company or concern as the complainant.”The Court also carved out the exception of a sole proprietor of a proprietorship firm. In such cases, the proprietor can lodge complaint, being the payee of the cheque.Applying the aforesaid legal principles to the facts of the case, the Court found that the prosecution was defective since the prosecution was initiated by the manager of the firm in his individual capacity. Thus, the appeal was dismissed.Case No: Criminal Appeal No. 968 of 2007Case Title: K. Ramachandran v. Gopi & Anr.Citation: 2025 LiveLaw (Ker) 356Counsel for the Appellant: M. Shaju PurushothamanCounsel for the Respondents: P. Venugopal – R2, Sheeba Thomas - Public ProsecutorClick to Read/Download Judgment

Manager Of Firm Cannot Prosecute U/S 138 NI Act In Personal Capacity If 'Payee' Of Cheque Is Firm: Kerala High Court

K. Salma Jennath

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