No fundamental defect if company’s name not mentioned first when suing through Managing Director: Supreme Court

The Supreme Court on Wednesday ruled that there is no fundamental defect in a cheque bounce complaint simply because the name of the Managing Director (MD) is stated first followed by the post held in the company (Bhupesh Rathod Dayashankar Prasad Chaurasia & Anr)..“There could be a format where the Company’s name is described first, suing through the Managing Director but there cannot be a fundamental defect merely because the name of the Managing Director is stated first followed by the post held in the Company,” held a Bench of Justices SK Kaul and MM Sundresh..The dispute arose when eight cheques issued by the respondent were dishonoured on account of insufficient funds. Despite issuance of legal notices, the demand was not met within 15 days and no reply was sent. Therefore, the appellant filed a complaint before the Special Metropolitan Magistrate, Mumbai..The complaint was filed by the MD of the company, Bhupesh Rathod, and was accompanied by a board resolution authorising him to initiate legal action on behalf of the company. However, the respondents took objection to the fact that the complaint was filed in the personal capacity of the Managing Director and not the company itself..The trial court as well as the High Court acquitted the respondent. Amongst other reasons, the High Court stated that the complaint was not filed through the payee, which was the company. The High Court also noted that the same may have been a conscious choice as it was unclear whether the company was authorised to advance loans. This judgment of the High Court came to be challenged before the apex court. .Before the Supreme Court, the appellant submitted that the cause title made it apparent that the complaint was filed on behalf of the company and a board resolution authorising the MD was also annexed. It was argued that a hyper-technical view of the matter had been taken, since the issue only related to the format of the complaint and not its substance.On the other hand, the respondent argued that the appellant had not proven his case beyond reasonable doubt..Referring to Section 139 of the Negotiable Instruments Act, which deals with dishonour of cheques, the Court noted that it was for the respondent to show under what circumstances the cheques had been issued and why was it not a cheque issued in due course."The respondent has not set up a case that the nature of transaction was of the nature which fell beyond the scope of Section 138. Other than taking a technical objection, really nothing has been said on the substantive aspect," it held..To determine what the governing principle would be for a corporate entity seeking to file a complaint, the Bench relied on a judgment of the Supreme Court in Associated Cement Co. Ltd. v. Keshavanand, where it was held that if a complaint is made in the name of a company, a natural person must represent the juristic person in court, which shall look to the natural person for all practical purposes.“Thus, no Magistrate could insist that the particular person whose statement was taken on oath alone can continue to represent the Company till the end of the proceedings. Not only that, even if there was initially no authority the Company can at any stage rectify that defect by sending a competent person,” the Court stated.The Bench further remarked that judicial precedents such as this case had been breached by the High Court and the trial court. It further noted,"The High Court also embarked on a discussion as to the vagueness of the identity of the complainant and its relation with the legality of a loan which may be granted by the Company, something that was not required to be gone into.".Further, it was clarified that an MD is taken to be in charge of a company’s day-to-day affairs and the same would entail approaching a court for setting a trial in motion.“A Manager or a Managing Director ordinarily by the very nomenclature can be taken to be the person in-charge of the affairs Company for its day-to-day management and within the activity would certainly be calling the act of approaching the court either under civil law or criminal law for setting 12 the trial in motion.”.In conclusion, the Court found that the complaint was properly instituted and the orders of the trial court and high Court were not sustainable..The respondent was sentenced to imprisonment for a term of one year and with fine twice the amount of the cheque, ie ₹3,20,000. However, the Court stated that if the respondent paid a further sum of ₹1,60,000 to the appellant, the sentence would stand suspended..[Read Judgment]