The Dishonored Cheque: Upholding Corporate Rights in M/S Naresh Potteries v. M/S Aarti Industries


Court: Supreme Court of India.

Case Name: M/S Naresh Potteries v. M/S Aarti Industries

Citation: 2025 INSC 1. [PDF]

Introduction

The case of M/S Naresh Potteries v. M/S Aarti Industries, adjudicated by the Supreme Court of India, addresses a critical aspect of corporate litigation under the Negotiable Instruments Act, 1881 (NI Act). This case specifically examines the validity of a complaint filed by a company through an authorized representative, in cases of dishonored cheques. The central issue revolves around whether a power of attorney holder, representing a company, needs to explicitly assert personal knowledge of the transaction in the complaint.

The High Court of Allahabad had previously quashed the summoning order against M/S Aarti Industries. The High Court held that the complaint was defective because the power of attorney holder, Neeraj Kumar, who was the manager of the complainant company, had not stated that he had personal knowledge of the transaction in question. The Supreme Court’s intervention was crucial in clarifying the legal requirements for complaints filed by corporate entities under Section 138 of the NI Act.

The Supreme Court’s judgment in this case provides clarity on the extent of knowledge required by the authorized representative of a company when filing a complaint. It establishes an important distinction between individual and corporate complainants. The decision also sets a precedent for the appropriate use of inherent powers of the High Court under Section 482 of the Code of Criminal Procedure (Cr.P.C.) in such cases.

Case Summary

  1. M/S Naresh Potteries, a company dealing in the manufacture and sale of crockeries and insulators, sold polymer insulator scrap to M/S Aarti Industries for ₹1,70,46,314.
  2. M/S Aarti Industries issued a cheque for the said amount, which was subsequently dishonored due to insufficient funds.
  3. M/S Naresh Potteries, through its manager, Neeraj Kumar, filed a complaint under Section 138 of the NI Act after a legal notice to M/S Aarti Industries went unheeded.
  4. The Additional Chief Judicial Magistrate, Khurja, issued summons to Sunita Devi, the proprietor of M/S Aarti Industries.
  5. The Allahabad High Court quashed the summoning order, stating that Neeraj Kumar, the power of attorney holder, did not explicitly assert personal knowledge of the transaction in the complaint.
  6. M/S Naresh Potteries appealed the High Court’s decision to the Supreme Court.
  7. The Supreme Court allowed the appeal, quashing the High Court’s judgment, and directed the trial court to restore and continue the proceedings.

Study guide

  1. Legal Issue: The central legal issue was whether a complaint filed under Section 138 of the NI Act by a company, through its authorized representative, is valid if the representative does not explicitly state personal knowledge of the transaction.
  2. Relevant Section: The case revolves around Section 138 of the NI Act, which deals with the dishonor of cheques, and Section 142 of the same act, which specifies how complaints related to dishonor of cheques are handled.
  3. Sequence of Events: M/S Aarti Industries purchased goods from M/S Naresh Potteries. A cheque issued as payment was dishonored leading to the legal notice and subsequent criminal complaint.
  4. High Court Decision: The High Court quashed the summoning order because it believed that Neeraj Kumar, the power of attorney holder, lacked personal knowledge of the transaction and there was no explicit assertion of such knowledge.
  5. Role of Neeraj Kumar: Neeraj Kumar was the manager of M/S Naresh Potteries and the authorized representative who filed the complaint under Section 138 of the NI Act. He also submitted the affidavit of evidence.
  6. Letter of Authority: The Letter of Authority authorized Neeraj Kumar to act on behalf of M/S Naresh Potteries and take necessary actions related to the dishonored cheque. This document was scrutinized by the Supreme Court.
  7. Knowledge Requirement: The Supreme Court stated that for a company complainant, it is sufficient if the authorized representative has knowledge of the matter and is authorized to pursue the complaint, while an individual complainant is required to make an explicit statement of personal knowledge about the transaction.
  8. Use of Inherent Powers: The Supreme Court cautioned that the inherent powers under Section 482 of the Cr.P.C. should be used sparingly and not to interfere with the jurisdiction of lower courts.
  9. Legal Precedents: The Supreme Court relied on cases such as National Small Industries Corporation Limited v. State (NCT of Delhi) and Others, A.C. Narayanan v. State of Maharashtra and Another, TRL Krosaki Refractories Limited v. SMS Asia Private Limited and Another, and Samrat Shipping Co. v Dolly George.
  10. Final Outcome: The Supreme Court allowed the appeal, quashed the High Court’s decision, and restored the complaint, directing the trial court to hear and decide the case on its merits.

Rationale

  1. Section 142 NI Act Requirements: The Supreme Court clarified that Section 142 of the NI Act requires the complaint under Section 138 to be filed by the payee. It found that the complaint was correctly filed in the name of the payee, M/S Naresh Potteries.
  2. Representation of Companies: The Court reiterated that a company can be represented by an employee or a non-employee authorized by a resolution or power of attorney. The court quoted, "Section 142 of the NI Act does not specify who should represent the company, if a company is the complainant. A company can be represented by an employee or even by a non-employee authorised and empowered to represent the company either by a resolution or by a power of attorney.".
  3. Distinction Between Individual and Company Complainants: The Court emphasized that the level of specific knowledge required of a representative is lower when the complainant is a company, compared to an individual.
  4. Knowledge of Power of Attorney Holder: While A.C. Narayanan v. State of Maharashtra required explicit assertions about the power of attorney holder's knowledge, this was deemed more relevant when the principal is an individual. When a company is the complainant, the person need only demonstrate they are authorized, and have knowledge of the facts, including its averments.
  5. Explicit Averment: The court noted that what constitutes an explicit assertion cannot be put in a "straightjacket" but will be "gathered from the circumstance".
  6. Trial Issue: The Court held that disputes regarding authorization or knowledge are matters to be determined during the trial, not at the stage of the initial complaint.
  7. Review of Letter of Authority and Affidavits: The Court scrutinized the Letter of Authority and affidavits filed by Neeraj Kumar, noting they clearly stated that he was "well-conversant with the transactions" and had "personal knowledge of the facts" being the manager and caretaker of the company's business. The Court quoted, “Sh. Neeraj Kumar, the power of attorney holder being the manager of the appellant-firm and the caretaker of its day-to-day business, was well-conversant with the transactions which led to the issuance of the cheque to the appellant-firm and which eventually led to the initiation of the criminal proceedings against Respondent No.1.".
  8. Incorrect Assumption by High Court: The Court found the High Court's judgment to be based on A.C. Narayanan, without adequately considering the TRL Krosaki case which dealt with a company as a complainant.
  9. Powers Under 482 Cr.P.C.: The Court cautioned that the inherent powers under Section 482 of the Cr.P.C. should be used sparingly and not to interfere with the jurisdiction of lower courts. The Court quoted, “Apart from that, this Court has repeatedly cautioned that the inherent powers under Section 482 of the Cr.P.C. should be exercised sparingly and with great caution and further that inherent powers should not be used to interfere with the jurisdiction of the lower courts or to scuttle a fair investigation or prosecution.".

FAQ

Q.1. What is the core issue in this Supreme Court case (M/S Naresh Potteries vs. M/S Aarti Industries)?

Answer: The central issue is whether the complaint filed by M/S Naresh Potteries, through its manager Neeraj Kumar, under Section 138 of the NI Act, is valid. The High Court had quashed the proceedings, stating that Neeraj Kumar, as a power of attorney holder, did not explicitly state his personal knowledge of the transaction. The Supreme Court examined the correctness of this interpretation.

Q.2. Why was the cheque issued by M/S Aarti Industries to M/S Naresh Potteries dishonored?

Answer: The cheque was dishonored because the "cheque amount exceeds arrangement," indicating that there were insufficient funds in M/S Aarti Industries’ account.

Q.3. What is Section 138 of the Negotiable Instruments Act, 1881, about and why is it relevant here?

Answer: Section 138 of the NI Act deals with the offense of dishonor of a cheque due to insufficient funds. M/S Naresh Potteries filed a complaint under this section after the cheque from M/S Aarti Industries was dishonored.

Q.4. What is the role of a power of attorney holder in filing a complaint under Section 138 of the NI Act?

Answer: A power of attorney holder can file a complaint on behalf of the payee company. They must demonstrate to the court that they are authorized to act on behalf of the company and have sufficient knowledge of the transaction.

Q.5. What did the High Court rule and why did the Supreme Court find it incorrect?

Answer: The High Court quashed the criminal proceedings stating that Neeraj Kumar did not explicitly assert his personal knowledge in the complaint documents. The Supreme Court found this incorrect because the High Court relied on case laws related to individual complainants, overlooking that in this case the complainant was a company and the manager had claimed to be conversant with the matter.

Q.6. What was the Supreme Court’s interpretation of the requirements of Section 142 of the NI Act?

Answer: Section 142 of the NI Act requires a complaint to be made by the payee. The Supreme Court clarified that when the payee is a company, the complaint must be in the name of the company and can be filed by an authorized employee who has knowledge of the transaction.

Q.7. What crucial evidence did the Supreme Court highlight in its judgment?

Answer: The Supreme Court highlighted the Letter of Authority issued by M/S Naresh Potteries and the affidavits filed by Neeraj Kumar. These documents stated that Neeraj Kumar was the manager, acquainted with the daily affairs of the firm and the transaction, thereby establishing his authorization and knowledge.

Q.8. What did the Supreme Court finally decide in this case?

Answer: The Supreme Court overturned the High Court's decision and reinstated the complaint filed by M/S Naresh Potteries. The case was sent back to the trial court for it to hear and decide on merits.

Conclusion

The Supreme Court’s judgment in M/S Naresh Potteries v. M/S Aarti Industries clarifies the legal position of corporate entities in cases of dishonored cheques. It underscores that a company can be duly represented by an authorized employee who has knowledge of the relevant transactions, without needing to explicitly assert personal witness of such transactions. The decision emphasizes that issues related to authorization and knowledge are best addressed during trial, and that High Courts should exercise their inherent powers under Section 482 of the Cr.P.C. with caution. This ruling provides significant legal clarity and reinforces the rights of corporate entities in pursuing legitimate claims under the Negotiable Instruments Act.

Popular posts from this blog

SARFAESI Act and Civil Court Jurisdiction: A Landmark Judgment

Court: Supreme Court of India Case Name: Central Bank Of India vs. Smt. Prabha Jain Citation: 2025 INSC 95  (Reportable) Background of the Case The Supreme Court of India addressed a series of civil appeals concerning the interplay between the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the jurisdiction of civil courts. The central issue was whether civil courts can adjudicate on the validity of sale deeds and mortgage deeds when the properties are under SARFAESI Act proceedings. This was particularly in the context where a third party, not the borrower, claimed an independent ownership right over the secured asset. The lead case involved Smt. Prabha Jain, who sought to reclaim her share of family land, arguing that her brother-in-law illegally sold the land which was later mortgaged to the Central Bank of India. The bank argued that the civil court's jurisdiction was barred by Section 34 of the SARFAE...
Read more

Navigating Partnership Disputes in Arbitration: Bombay High Court Upholds Minimal Judicial Intervention, Tasking Arbitral Tribunal to Determine Privity Amidst Partner Succession and a Substitute Presiding Arbitrator Appointment

The High Court of Judicature at Bombay recently addressed a contentious arbitration petition,  2025:BHC-AS:11467 , arising from a dispute concerning the exit of the Petitioner, Darshan Mahendra Nibjya, from a partnership firm where Respondent No. 2, Jayantilal Tarachand Oswal & Ors., subsequently became a partner.  The core legal question revolved around the maintainability of the arbitration against Respondent No. 2, who contended that no arbitration agreement existed between him and the Petitioner. This issue came before the Court in the context of an application for the appointment of a substitute presiding arbitrator, necessitated by the resignation of the previously appointed arbitrator following allegations from Respondent No. 2. The genesis of the matter lies in the inability of the arbitrators nominated by the Petitioner and Respondent No. 1 to agree on a presiding arbitrator, leading to the initial appointment by a Learned Single Judge, an order upheld by the Sup...
Read more

Upholding Governmental Prerogative to Rectify Flawed Recruitment: Supreme Court Settles Assam Forest Constable Appointment Saga

Court: Supreme Court of India. Case Name: STATE OF ASSAM vs. ARABINDA RABHA. Citation: 2025 INSC 334 (Reportable) Background of the Disputed Recruitment The Principal Chief Conservator of Forest & Head of Forest Force, Assam, initiated recruitment for 104 Constable posts in 2014. The selection process involved a physical endurance test followed by interviews, notably without a written examination. A select list was prepared and submitted for government approval. Intervention and Cancellation by the Successor Government A new political regime assumed power in Assam in May 2016. The incumbent PCCF subsequently submitted a note highlighting serious anomalies in the selection process, including disproportionate district-wise representation and reservation policy violations. Based on this note, the Government cancelled the select list in July 2016 without any further inquiry. A fresh advertisement for 132 constable posts was issued in April 2017. High Court's Scrutiny a...
Read more