Published On: 3rd November, 2024
Authored By: Sruthi B
Case: M/S Trl Krosaki Refractories Ltd. Vs. M/S Sms Asia Private Limited(2022), 2022 Livelaw (Sc) 196
(Arising Out Slp (Crl.) No. 3133 Of 2018)
INTRODUCTION:
The Negotiable Instruments Act, introduced in 1881, regulates commercial, industrial, and corporate operations in India. It covers promissory notes, bills of exchange, and cheques. The Act’s primary goal is to regulate expanding operations, encourage financial concerns, and preserve creditor trust. However, cheque dishonour is a prevalent issue in India, and Section 138 of the Act provides legal action for companies. The case of M/s TRL Krosaki Refractories Ltd. vs. M/s SMS Asia Private Limited, 2022, clarified the requirements for representing a company in legal proceedings related to cheque dishonour. The Supreme Court’s ruling highlighted the need for a competent person and clear documentation to support legal complaints. This research paper aims to analyze the case’s implications and examine the requirements for representing a company in legal proceedings related to cheque dishonour in India.
FACTS:
The case of M/s TRL Krosaki Refractories Ltd. Vs. M/s sms Asia Private Limited, 2022, arose when the Respondent, M/s sms Asia Private Limited, was required to pay a certain amount to the Appellant company, M/s TRL Krosaki Refractories Ltd. The Respondent had issued seven cheques totalling Rs. 1,10,00,000/- to the Appellant company. However, when presented, the bank refused to honour the cheques mentioned above due to insufficient balance in the Respondent’s bank account.
PROCEDURAL HISTORY:
Due to the Respondent’s failure to pay the amount due, the Appellant filed a complaint based on an affidavit that was submitted in place of the complainant in place of an oral sworn statement. The Lower Court had taken cognizance and issued a summons under Section 138 of N.I. Act against the accused. However, the High Court quashed the order of the Lower Court, stating that the general manager of the company was not competent to file the case on behalf of the company.
ISSUE:
- Whether the general manager of a company represents the company in legal proceedings related to Section 138 of the Negotiable Instruments Act cases of dishonoured checks.
- Whether the general manager of the Appellant company had the requisite knowledge of the transaction and was competent to file the case against the Respondent company?
- Whether the Lower Court justified in taking cognizance and issuing summons under Section 138 of the Negotiable Instruments Act against the Respondent company?
- Whether the High Court was justified in quashing the decision of the Lower Court and whether the Supreme Court was right to overturn the High Court’s decision?
- What are the legal requirements for representing a company in legal proceedings related to examining cases of cheque dishonour under Section 138 of the Negotiable Instruments Act?
RULE(S):
Section 138 of the Negotiable Instruments Act, 1881 specifically addresses the issues of dishonoured cheques. The section mandates the cheque to be drawn and presented within 3 months from the validity. If the cheque is returned unpaid due to insufficient funds, it should be presented for collection within 30 days from the date of dishonour. Failure to settle the amount within 15 days from the date of receiving the notice shall be considered a contractual breach. The consequence of such a breach includes a two-year prison term a fine of up to twice the amount of the check, or both.
According to section 141 of the NI Act, If the offence committed under 138 of the NI Act is by a company (any corporate entity and comprises a corporation or other organisation of individuals), whoever was in charge at that time, and was responsible for working of the company, shall be held guilty and be given punishment accordingly.
In cases of dishonour of cheques, a competent person knowing the transaction can represent a company in its legal proceedings. This is in accordance with Section 141 of the Negotiable Instruments Act of 1881, which holds “Every person who was in charge of and responsible for the conduct of the company’s business at the time of the wrong act as guilty and liable to be held accountable.” Such a person must be authorised by the company and familiar with the fundamental components of the case. But, if they can show that the crime was committed without them knowing or that they took reasonable measures to prevent it from happening, they might not be held liable. Affidavits and thorough documentation are essential in these circumstances to support any legal accusations.
ANALYSIS:
The main issue, in this case, was whether the general manager of the company was competent to represent the company or not.
In the case of Sunita Palita Vs Panchami Stone Quarry, it was held that, rather than simply having a position of authority inside a corporation, Section 138/141 of the NI Act culpability arises derives from having had control over and responsibility for the company’s business operations at the time the offence was committed. In the chosen case as well, the Supreme Court clarified that the documents produced in front of the court clarified that the general manager was the authorised person at the time when the business was conducted and that the manager had knowledge about the transaction. Therefore, he could represent their company. Additionally, he authorized the reconciliation declaration and sent the respondent the notice when the checks were returned unpaid.
Similarly in V. Sudheer Reddy v. State of A.P 2000, it was held that: ” A person [who appears to be] merely a director of the company cannot be held criminally liable for an offence under Section 138 of the Negotiable Instruments Act unless it can be proven that he was actively involved in the day-to-day operations of the company and was accountable to the company, according to Section 141 of the Negotiable Instruments Act.”
Another case clarifying the importance of sections 138 and 141 is the case of V. Sudheer Reddy v. State of A.P, 1999 96 Comp Cas 106 AP, which shows that the Negotiable Instruments Act’s Sections 138 and 141 were the focus of the discussion. According to the Andhra Pradesh High Court, a corporation’s directors are not always held vicariously accountable for the wrongdoing carried out by the company.
Only those directors who, at the moment the offence was committed, were held responsible or accountable to the company for the company’s business conduct will be deemed guilty of the offence.
According to that argument, a capable individual who was familiar with the transaction represented the company. The confirming affidavit that was included with the complaint further claimed that he had the knowledge and that the complaint was supported by the relevant records. Therefore, the Supreme Court ruled in favour of the Appellant, and the order passed by the High Court quashing the order of the Lower Court was set aside.
Overall, this case highlights the importance of having a competent person who was aware of the transaction to represent a company in legal proceedings. It also emphasises the need for clear documentation and affidavits to support any legal complaints. Through its ruling, the Supreme Court has provided clarity on the requirements for representing a company in such cases, which can help avoid any future legal disputes.
CONCLUSION:
To conclude, the case of TRL Krosaki Refractories Ltd. vs. SMS Asia Private Limited, 2022, highlights the importance of having a competent person with knowledge about the transaction to represent a company in legal proceedings. The Supreme Court’s ruling provides clarity on the requirements for representing a company in cases of cheque dishonour, which can help avoid future legal disputes.
The case also emphasises the need for clear documentation and affidavits to support any legal complaints. It is essential to ensure that the person representing the company has the necessary knowledge and authority to do so. Failure to comply with these requirements may lead to the dismissal of the case.
Therefore, it is imperative for companies to have a well-defined process for legal representation and to ensure that the authorised person has the necessary knowledge and expertise to represent the company. Companies should also maintain accurate records of all transactions to support any legal claims or complaints.
In summary, the TRL Krosaki Refractories Ltd. vs. SMS Asia Private Limited, 2022 case serves as a reminder for companies to adhere to legal requirements and guidelines when filing cases of cheque dishonour or any other legal complaints. It is vital to have competent representatives and accurate documentation to support legal claims and prevent any legal disputes in the future.
