Section 138 NI Act Complaint Not Maintainable By Third Party Who Is Neither Payee Nor 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 person who is neither payee nor holder in due course cannot file a complaint even if he is indirectly affected by the transaction", Allahabad High Court, in a significant ruling, held that a 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 Hon’ble Samit Gopal, J. observed that Section 142 of the NI Act explicitly mandates that no court shall take cognizance of an offence punishable under Section 138 except upon a complaint, in writing, made by the payee or the holder in due course of the cheque.

The revisionist, Rajesh Kukreja, challenged a summoning order dated July 26, 2013, passed by the Metropolitan Magistrate, Kanpur Nagar. The dispute originated from eleven cheques totaling ₹22 lakhs issued by Mangalam Restaurant & Hotels Pvt. Ltd. in favour of "Hotel Paradise." However, the complaint under Section 138 was filed by "M/s. Krishna Hotels and Developers" through its partner, Smt. Saroj Dubey. The trial court initially questioned the complainant's locus but subsequently summoned the revisionist, prompting the criminal revision.

The primary question before the court was whether a complaint under Section 138 of the NI Act is maintainable when filed by an entity that is not the named payee on the cheque. The court was also called upon to determine if a third party, claiming to be a partner or owner of the unit for which the cheque was issued, possesses the legal locus standi to initiate criminal proceedings under the Act.

Mandatory Requirement Of Section 142 For Cognizance

The Court began by analyzing the statutory framework of the Negotiable Instruments Act, particularly Section 142, which governs the cognizance of offences. The bench noted that the law creates a specific bar, stating that a complaint can be made only by the payee or the holder in due course. The Court emphasized that this is a mandatory requirement that cannot be bypassed by third parties or strangers to the instrument.

Definition Of Payee And Holder In Due Course

Referring to Sections 7 and 9 of the NI Act, the Court clarified the identities of the parties entitled to sue. It observed that the "payee" is the person named in the instrument to whom the money is directed to be paid, while a "holder in due course" is one who possesses the cheque for consideration. The bench noted that in the present case, the cheques were drawn in favour of "Hotel Paradise," yet the complaint was filed by "M/s. Krishna Hotels and Developers."

Locus Standi Of Third Parties And Indirectly Affected Persons

The Court dealt extensively with the argument regarding the locus of the complainant. It held that even if a person is indirectly affected by the transaction, they cannot step into the shoes of the payee to file a criminal complaint unless they qualify as a holder in due course. The bench remarked that "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."

Distinction Between Personal Capacity And Authorized Representation

While acknowledging that a power of attorney holder or an authorized signatory can initiate proceedings, the Court underscored that the complaint must still be in the name of the payee or holder. It observed that a complaint through a manager or attorney is valid only if they are duly authorized and the complainant remains the actual legal entity entitled to the payment. In this case, the entity itself was different from the payee.

"A complaint under Section 138 of the Negotiable Instruments Act, 1881 is not maintainable by a third party. It must be filed by the payee or the holder in due course of cheque."

Distinguishing Precedents On Holder In Due Course

The respondent had relied on the judgment in M/s Naresh Potteries vs. M/s Aarti Industries, arguing that authorization issues should be decided at trial. However, the High Court distinguished the precedent, noting that in Naresh Potteries, the complaint was filed by the entity named on the cheque through its manager. In the present case, the cheques were not in the name of the complainant entity at all, making the facts fundamentally different.

Final Order and Quashing of Proceedings

The Court concluded that the trial court erred in summoning the revisionist without properly addressing the lack of locus standi, which it had initially noted. Finding that the opposite party had no legal standing to file the complaint, the Court allowed the revision and quashed the impugned summoning order to prevent the abuse of the process of law.

The ruling reaffirms the strict interpretation of Section 142 of the NI Act, establishing that criminal liability for cheque dishonour can only be invoked by the specific parties recognized by the statute. By setting aside the summoning order, the Court has clarified that the identity of the complainant must strictly align with the "payee" or "holder in due course" mentioned in the dishonoured instrument.

Date of Decision: 28 January 2026