Only Payee or Holder in Due Course Can File Cheque Dishonour Complaint Under Section 138 NI Act: Allahabad High Court Quashes Complaint Filed by Stranger Firm

“A third party who is neither payee nor holder in due course has no locus – complaint under Section 138 NI Act not maintainable” –  In a significant ruling reinforcing the strict statutory requirement of locus standi under the Negotiable Instruments Act, the Allahabad High Court quashed criminal proceedings initiated under Section 138 of the NI Act, holding that a complaint for cheque dishonour can be filed only by the payee or holder in due course, and not by a third party, even if indirectly interested.

Justice Samit Gopal observed that the trial court had erred in summoning the accused despite the complainant not having any legal title to the cheque, which was issued in the name of “Hotel Paradise”, but the complaint was filed by another entity, “M/s Krishna Hotels and Developers.”

“A third party or a stranger with no legal title to the cheque cannot file and institute a complaint. The complaint must be by the payee or holder in due course only.” [Para 13]

Cheque Issued to 'Hotel Paradise', But Complaint Filed by 'Krishna Hotels' – High Court Finds Fatal Defect

The dispute pertained to 11 cheques of ₹2 lakhs each, dated 15.04.2012, issued by Mangalam Restaurant & Hotels Pvt. Ltd. in favour of “Hotel Paradise”, which were later dishonoured.

Instead of a complaint being filed by Hotel Paradise or its authorized representative, the proceedings were initiated by “M/s Krishna Hotels and Developers” through its partner, Smt. Saroj Dubey. Initially, the trial court itself raised doubts over the complainant’s locus standi, noting that the payee on the cheque was not the complainant.

However, by the order dated 26.07.2013, the Metropolitan Magistrate, Kanpur Nagar, disregarded its earlier concerns and proceeded to summon the accused under Section 138 NI Act, holding that Hotel Paradise was a unit of Krishna Hotels. This summoning order became the subject of the present criminal revision.

“Statutory Mandate of Section 142 NI Act Cannot Be Bypassed” – Cognizance Only at Instance of Payee or Holder in Due Course

Referring to Section 142(a) of the Negotiable Instruments Act, the Court held that no court can take cognizance of an offence under Section 138 except upon a complaint in writing made by the payee or holder in due course.

Justice Samit Gopal clarified: “An authorized representative of the payee or holder of cheque can initiate proceedings as a power of attorney holder… but the complaint is still to be in the name of the payee or holder of the cheque and not in the representative’s personal capacity.” [Para 13]

He added: “The conclusion… is that under the NI Act, a complaint by a third party in their own name is not maintainable unless that third party qualifies as holder in due course or acts merely as an authorized representative of the payee.” [Para 13]

Supreme Court Ruling in Naresh Potteries Distinguished – Complaint Must Still Be in Name of Payee or Holder

The opposite party had sought to rely on the Supreme Court’s 2025 judgment in M/s Naresh Potteries v. Aarti Industries to argue that locus objections can be raised during trial and that the complaint should proceed.

However, the High Court distinguished the case, noting that: “In Naresh Potteries, the complaint was filed by the payee entity through its authorized representative. In the present case, the complainant itself is not the payee or holder in due course. Hence, the ratio is inapplicable.” [Para 12]

The Court emphasized that the distinction lies in the identity of the complainant. In Naresh Potteries, the complainant was the payee; in the present case, the complainant was a different legal entity, with no legal title to the cheque.

Complaint Quashed, Summoning Order Set Aside – Revision Allowed

Finding that the complainant lacked statutory locus, and the trial court ignored its own earlier findings while taking cognizance, the High Court held that the summoning order suffered from a jurisdictional error and deserved to be quashed:

“The trial court… did not consider the issue of locus while passing the summoning order. The order dated 26.07.2013 is hereby quashed.” [Para 15]

Accordingly, the Court allowed the revision and quashed proceedings in Complaint Case No. 1091 of 2012.

This judgment reinforces a strict construction of procedural safeguards under Section 142 of the NI Act, making it clear that only the payee or holder in due course can file a valid complaint under Section 138.

By quashing proceedings initiated by a third-party firm with no legal title to the dishonoured cheque, the Allahabad High Court has restated the need for strict compliance with statutory prerequisites in cheque bounce cases, thereby protecting accused persons from unwarranted prosecutions initiated by those lacking proper locus.

Date of Decision: 28 January 2026