S.138 NI Act Complaint Not Maintainable By Third Party In Own Name Unless They Are Payee Or Holder In Due Course: Allahabad High Court

"A third party or a stranger with no legal title to the cheque can not file and institute a complaint... a complaint by a third party in their own name is not maintainable unless that third party qualifies as holder in due course," Allahabad High Court, in a significant ruling dated January 28, 2026, held that a criminal complaint under Section 138 of the Negotiable Instruments Act, 1881, is not maintainable if filed by a third party who is neither the payee nor the holder in due course.

A bench of Justice Samit Gopal observed that while an authorized representative can initiate proceedings, the complaint must fundamentally remain in the name of the payee or the holder of the cheque.

The matter arose from a revision petition filed by Rajesh Kukreja challenging a summoning order passed by a Metropolitan Magistrate in Kanpur. The dispute involved eleven cheques issued in favor of "Hotel Paradise," but the criminal complaint was filed by "M/s Krishna Hotels and Developers" through its partner, Smt. Saroj Dubey. Although the complainant claimed to be the owner of Hotel Paradise, the cheques were not drawn in the name of the entity that filed the complaint.

The primary question before the court was whether a complaint under Section 138 of the NI Act can be maintained by a person or entity other than the named payee or the holder in due course. The court was also called upon to determine if the lack of locus standi of the complainant at the threshold would invalidate the summoning order.

Court Analyzes Statutory Framework Under Section 142 NI Act

The Court observed that Section 142 of the Negotiable Instruments Act, 1881, explicitly governs the cognizance of offences. It stipulates that no court shall take cognizance of any offence punishable under Section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque. The bench emphasized that this provision limits the category of persons who can set the law in motion.

"The Negotiable Instruments Act, 1881 in its Section 142 states regarding cognizance of offence... no court shall take cognizance except upon a complaint made by the payee or the holder in due course."

Definitions of Payee and Holder in Due Course

Referring to Section 7 of the Act, the Court noted that a "payee" is the person named in the instrument to whom the money is directed to be paid. Furthermore, Section 9 defines a "holder in due course" as any person who for consideration became the possessor of the cheque. The Court held that these definitions are precise and do not allow for the inclusion of third parties who are indirectly affected by the transaction but lack legal title to the instrument.

Status of Authorized Representatives and Power of Attorney Holders

The Court clarified the legal position regarding representatives. It noted that an authorized representative, such as a power of attorney holder or an authorized signatory of a company, can indeed initiate proceedings. However, the bench was categorical that the complaint must still be in the name of the payee or holder of the cheque, rather than in the representative’s personal capacity or under the name of a separate legal entity.

"An authorized representative of the payee or holder of cheque can initiate proceedings... but the complaint is still to be in the name of payee or holder of the cheque and not in the representatives personal capacity."

Third Parties Lacking Legal Title Cannot Institute Complaints

In its detailed reasoning, the Court held that a third party or a stranger with no legal title to the cheque cannot file and institute a complaint. This remains true even if the individual is indirectly affected by the financial transaction. The bench observed that the trial court had initially raised a query regarding the locus of the complainant but had failed to resolve this fundamental legal hurdle before passing the summoning order.

"A person who is neither payee nor holder in due course cannot file a complaint even if he is indirectly affected by the transaction."

Distinguishing Precedent on Representative Capacity

The Court also addressed the respondent's reliance on the Supreme Court judgment in M/s Naresh Potteries vs. M/s Aarti Industries. Justice Gopal noted that in that case, the complaint was filed by the entity named on the cheque through a manager. In the present case, the cheques were in the name of "Hotel Paradise," but the complaint was filed by "M/s Krishna Hotels and Developers," making the facts distinguishable as the complainant was not the holder in due course.

The High Court concluded that the opposite party had no locus standi to file the complaint as they did not qualify as the payee or holder in due course under the NI Act. Consequently, the Court allowed the revision and quashed the summoning order dated July 26, 2013. The ruling reaffirms that strict adherence to the procedural requirements of Section 142 is mandatory for maintaining a prosecution for cheque dishonour.

Date of Decision: 28 January 2026