Contextual “Explicit Averment” Standard Under Section 138 NI Act: Supreme Court Restores Complaint and Restricts Threshold Quashing

Case: M/s Naresh Potteries v. M/s Aarti Industries and Another, 2025 INSC 1 (Supreme Court of India, 02 January 2025)

Introduction

This decision of the Supreme Court of India clarifies and consolidates the law on who may institute and prosecute complaints under Section 138 of the Negotiable Instruments Act, 1881 (NI Act), and the standard of pleading required to satisfy Section 142(1)(a) (complaint “by the payee or holder in due course”). The Court also reiterates the limited role of the High Courts’ inherent powers under Section 482 of the Code of Criminal Procedure, 1973 (CrPC) in cheque dishonour prosecutions, particularly on issues of authorisation and knowledge of the person representing the complainant.

The appellant, M/s Naresh Potteries (a proprietary concern), supplied goods to M/s Aarti Industries (respondent no.1). A cheque issued by the respondent was dishonoured with the remark “exceeds arrangement.” After a statutory notice, the appellant’s Manager and authorised representative, Neeraj Kumar, filed a complaint under Section 138 NI Act. The trial court issued summons. On a petition under Section 482 CrPC, the High Court quashed the summoning order and the complaint on the ground that the authorised representative lacked “specific averments” of personal knowledge in the complaint and accompanying filings.

The Supreme Court, setting aside the High Court’s order, reaffirms a contextual and practical reading of what constitutes an “explicit averment” of authorisation and knowledge by the person representing the payee. Relying on the three-judge bench ruling in TRL Krosaki Refractories Ltd. v. SMS Asia Pvt. Ltd. and Another (2022) 7 SCC 612, and harmonising it with A.C. Narayanan v. State of Maharashtra (2014) 11 SCC 790, the Court held that threshold quashing is unwarranted when the complaint is in the name of the payee and the materials show that the deponent is authorised and “well conversant” with the facts. Issues of authorisation or knowledge are ordinarily matters for trial.

Summary of the Judgment

• The Supreme Court allowed the appeal, set aside the High Court’s order quashing the complaint, and restored Complaint No. 701 of 2021 to the file of the Additional Chief Judicial Magistrate, Khurja, Bulandshahr.
• The Court held that the complaint satisfied Section 142 NI Act because it was filed “in the name of the payee” (M/s Naresh Potteries), through an authorised representative.
• On the requirement of “specific averments” of knowledge by a power-of-attorney/authorised representative, the Court endorsed a contextual reading: the Letter of Authority and affidavits repeatedly stating that the manager was in charge of day-to-day affairs and “well conversant” with the facts were sufficient at the cognizance stage.
• Reiterating TRL Krosaki, the Court stated that threshold dismissal or quashing on authorisation/knowledge grounds is generally improper; such issues are for trial unless there is a glaring lack of material.
• The Court cautioned against perfunctory invocation of Section 482 CrPC to scuttle prosecution under Section 138 NI Act, emphasising that the power must be exercised sparingly.

Detailed Analysis

Statutory Framework

• Section 138 NI Act creates the offence of cheque dishonour subject to statutory preconditions.
• Section 142(1)(a) NI Act mandates that cognizance can be taken “only upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course.”
• Section 200 CrPC requires examination of the complainant and witnesses upon oath before issuance of process; however, Section 145 NI Act permits evidence on affidavit in NI Act cases, and the Magistrate may rely on such affidavit to decide on issuance of process.

Precedents Cited and Their Influence

1) National Small Industries Corporation Ltd. v. State (NCT of Delhi) (2009) 1 SCC 407

The Court delineated the concept of the “de jure complainant” (the payee company) and the “de facto complainant” (the human agent who represents it). It held that Section 142 is satisfied if the complaint is in the name of the payee; representation may be by an employee or even a non-employee, duly authorised by resolution or power of attorney. For Section 200 CrPC purposes, the representative is examined as the de facto complainant. This judgment underpins the Supreme Court’s acceptance here that the legal requirement is met when the complaint is in the payee’s name and the representative is authorised.

2) A.C. Narayanan v. State of Maharashtra (2014) 11 SCC 790

A three-judge bench clarified key issues:

• Filing a complaint through a power of attorney holder is lawful and competent, but the power of attorney holder cannot file in his own name; he acts as an agent of the payee.
• The power of attorney holder can depose and verify on oath, provided he either witnessed the transaction as agent or possesses due knowledge.
• The complaint should contain specific assertion that the power of attorney holder has knowledge of the transaction; a person without knowledge cannot be examined as a witness on those facts.
• In light of Section 145 NI Act, a Magistrate may rely on a verification affidavit without mandatorily calling the complainant; calling the complainant is a matter of discretion.

The High Court had relied heavily on A.C. Narayanan to quash the complaint for want of “specific averments”. The Supreme Court, however, distinguishes and harmonises this requirement through the lens of later precedent (TRL Krosaki), stressing that explicitness is a matter of substance and context, not formulaic wording.

3) TRL Krosaki Refractories Ltd. v. SMS Asia Pvt. Ltd. (2022) 7 SCC 612

This more recent three-judge bench judgment supplies the decisive ratio:

• “Explicit averment” about authorisation and knowledge is contextual. There is no straitjacket formula; adequacy is assessed from the overall pleadings and materials.
• When the payee is a company, the complaint should be by the company and represented by an authorised person who states knowledge; such averments and prima facie materials suffice for cognizance and issuance of process.
• Questions over authorisation or knowledge are ordinarily triable issues; threshold dismissal or quashing (including under Section 482 CrPC) on such grounds is generally unwarranted.
• Reinforced Samrat Shipping Co. (P) Ltd. v. Dolly George (2002) 9 SCC 455, which disapproved dismissing a complaint at the threshold for want of a board resolution, recognising that proof of authorisation may emerge during trial.

The present judgment applies TRL Krosaki’s “contextual explicit averment” test, emphasising substance over form and rejecting a hyper-technical approach to pleadings at the pre-trial stage.

4) Other Authorities Noted

• Shankar Finance and Investments v. State of Andhra Pradesh (2008) 8 SCC 536: Recognises how proprietary concerns may institute proceedings, including through their proprietor or authorised representative.
• Vinita S. Rao v. Essen Corporate Services Pvt. Ltd. (2015) 1 SCC 527: Supports a practical approach to authorisation and knowledge in pleadings; absence of specific corporate documentation at the threshold is not fatal if the materials otherwise show authorisation.
• Praveen v. Mohd. Tajuddin (2009) 12 SCC 706: Cited by the appellant; the broader line of authorities supports the permissibility of complaints through duly authorised representatives with knowledge.

Legal Reasoning Applied by the Court

1. Section 142(1)(a) NI Act requirement is met when the complaint is “in the name of the payee.” Here, the complaint was filed as “M/s Naresh Potteries through Neeraj Kumar (Manager and Authority-letter holder).” The cheque in question was also issued in favour of “Naresh Potteries.” Thus, at the threshold, the Section 142 requirement stood satisfied.
2. On the “knowledge” requirement for an authorised representative:
   • The Court examined three documents: the Letter of Authority issued by the sole proprietor, the verifying affidavit accompanying the complaint, and the affidavit of evidence under Section 200 CrPC. Each repeatedly asserted that Neeraj Kumar was the Manager, in charge of day-to-day affairs, and “well conversant with the facts and circumstances of the case.”
   • Applying TRL Krosaki, the Court held that “explicit averment” is not a ritualistic incantation; the adequacy of averments is to be gathered from context and materials. The statements here sufficiently conveyed that the deponent was authorised and possessed personal knowledge.
3. Magistrate’s discretion under Sections 200 CrPC and 145 NI Act:
   • The Magistrate may rely on affidavits at the cognizance stage and may, in discretion, call the complainant for oral examination if necessary. The trial court’s issuance of summons based on the affidavits and documents was therefore unimpeachable.
4. Section 482 CrPC restraint:
   • The Court reiterated that inherent powers must be exercised sparingly. Issues of authorisation and knowledge are typically matters for trial and do not ordinarily justify quashing at the threshold unless there is a clear legal bar or manifest absence of material.
5. Conclusion on facts:
   • The High Court’s quashing was “perfunctory and erroneous,” ignoring the cumulative effect of the authorisation letter and affidavits which satisfied both authorisation and knowledge requirements.

Impact and Significance

This judgment has important clarifications for Section 138 NI Act prosecutions and for trial and High Court practice:

• Contextual explicitness standard: The Court cements the move away from formulaic “magic words.” Statements that the representative manages day-to-day affairs and is “well conversant with the facts,” coupled with an authorisation, can suffice for cognizance. This reduces hyper-technical challenges to maintainability.
• Parity of approach across entities: While TRL Krosaki emphasised the company context, this case demonstrates the same sensitivity applies to proprietary concerns where a manager/attorney is demonstrably in charge and informed.
• Trial, not threshold, is the stage for deeper scrutiny: Disputes about the fact or extent of authorisation, or the representative’s knowledge, should ordinarily be tested via evidence and cross-examination. High Courts should be slow to quash on such grounds at the pre-trial stage.
• Guidance for drafting: Complainants should continue to:
  • File the complaint in the name of the payee (company/proprietary concern/individual, as the case may be);
  • Attach an authorisation (resolution or power/letter of authority); and
  • Include an affidavit stating that the deponent is authorised and has personal knowledge (e.g., manages day-to-day affairs; handled the transaction; conversant with the facts).
  Per this ruling, such materials are ordinarily adequate for issuance of process.
• Section 482 discipline: The decision reinforces restraint in using inherent powers to interfere at the inception of Section 138 prosecutions, thereby supporting the NI Act’s policy of efficiency and certainty in cheque transactions.

Complex Concepts Simplified

• Payee and Holder in Due Course: The “payee” is the person to whom the cheque is made payable. A “holder in due course” is someone who has obtained the instrument for consideration and in good faith before maturity, with certain statutory protections.
• De jure vs De facto Complainant: Where the payee is a non-natural person (e.g., a company), the legal complainant (de jure) is the company, but it must act through a human agent (de facto), typically an authorised employee or attorney holder who can be examined under Section 200 CrPC.
• Power of Attorney/Authorisation: A document by which the principal empowers an agent to act on its behalf, including to institute and prosecute legal proceedings.
• Section 200 CrPC and Section 145 NI Act: Section 200 generally requires examination of the complainant on oath. In NI Act cases, Section 145 allows evidence by affidavit, and Magistrates can rely on such affidavits to issue process; calling the complainant is discretionary.
• “Exceeds arrangement”: A common bank return reason signalling insufficient arrangement/overdrawal beyond agreed limits; it triggers the statutory scheme of Section 138, subject to fulfilment of notice and other conditions.
• Summoning Order: The order by which the Magistrate, upon finding a prima facie case, issues process against the accused to face trial.
• Section 482 CrPC: The High Court’s inherent powers to prevent abuse of process or secure ends of justice. It is to be exercised sparingly, not as a routine substitute for trial.

Application to the Facts in Naresh Potteries

The Supreme Court closely examined three core documents:

• The Letter of Authority from the sole proprietor (Smt. Shakti Khanna), stating that Neeraj Kumar is the Manager who “takes care of general and day-to-day managerial business,” is “very well conversant with everyday affairs, financial transactions and sale-purchase of the firm,” and is “well aware of this case.”
• The verifying affidavit with the complaint: the deponent (Neeraj Kumar) states he is the Manager, holds the authority letter from the proprietor, and “is well conversant with the facts and circumstances of the case.”
• The affidavit of evidence under Section 200 CrPC echoes the same averments.

Read cumulatively, these materials met the dual threshold: (i) the complaint was “by the payee” (Section 142), and (ii) the representative’s authorisation and knowledge were sufficiently pleaded for cognizance and issuance of process. Any remaining disputes on authorisation or knowledge are for trial. The High Court’s contrary view was found to be perfunctory and erroneous.

Conclusion

M/s Naresh Potteries v. M/s Aarti Industries (2025 INSC 1) reinforces a practical, context-sensitive approach to maintainability under Section 138 NI Act. The Court:

• Reaffirms that Section 142 is satisfied when the complaint is in the name of the payee, represented by a duly authorised person;
• Clarifies that “explicit averment” of knowledge by the authorised representative is a substantive, contextual standard—repeated assertions of being in charge of operations and “well conversant with the facts” suffice at the cognizance stage;
• Emphasises that issues of authorisation and knowledge are ordinarily for trial, not for threshold quashing under Section 482 CrPC; and
• Restores the complaint, endorsing Magistrates’ reliance on affidavits under Section 145 NI Act and their discretion under Section 200 CrPC.

The decision will streamline cheque dishonour prosecutions by curbing hyper-technical objections at inception and ensuring that genuine disputes about authorisation or knowledge are resolved on evidence at trial. It harmonises A.C. Narayanan with TRL Krosaki, consolidating a coherent and workable standard for complaints filed through authorised representatives of both proprietary concerns and corporate entities.