2026 (2) TMI 774 - HC - Indian Laws

Curable defect in company authorization: subsequent ratification validates prosecution and contested authorization issues go to trial.

An initial absence of formal board authorization for a company to institute proceedings under Section 138 of the Negotiable Instruments Act is a curable ... Initial of defect in authorization for instituting a complaint u/s 138 of the Negotiable Instruments Act, 1881 - Curable defect - company acts through natural persons - representation of a company by an authorised employee - prima facie material for taking cognizance - dismissal at threshold for lack of authorization is too hasty - quashing u/s 482 CrPC not warranted where factual disputes exist - HELD THAT:- In TRL Krosaki Refractories Ltd. [2022 (2) TMI 1112 - SUPREME COURT], the Apex Court has held that in cases under Section 138 of the NI Act, the complainant necessarily should be the company which should be represented by an employee who is authorized and prima facie in such a situation, the indication in the complaint and the sworn statement to the effect that the complainant company is represented by an authorized person who has knowledge would be sufficient. The Apex Court further held that if at all there is any serious dispute with regard to the person prosecuting the complaint not being authorized or if it is to be demonstrated that the person who filed the complaint has no knowledge of the transaction, it would be open for the accused to dispute the position and establish the same during the course of the trial and the Magistrate would not be justified in dismissing the complaint at the threshold on the question of authorization. It was further held that in such circumstances, entertaining a petition under Section 482 to quash the order taking cognizance by the Magistrate would be unjustified when the issue of proper authorization can only be an issue for trial. Further, it has been clearly held in MMTC Limited [2001 (11) TMI 837 - SUPREME COURT] that the initial absence of a Board Resolution or authorization for filing a complaint under Section 138 N.I Act is a curable defect and not a ground to quash the proceedings and that a company acts through natural persons and subsequent ratification validates the complaint. Thus, it is abundantly clear that any initial defect as regards authorization at the time of initiation of the complaint is a curable defect which can be subsequently cured during the course of the trial or even at the appellate stage as held by the Supreme Court in George Joseph & Another [2014 (10) TMI 1088 - KARNATAKA HIGH COURT] No infirmity in the impugned order of the Magistrate permitting the complainant to adduce additional evidence to bring on record the subsequent resolution of the Board of Directors and General Power of Attorney authorizing the complainant to institute the complaint. Accordingly, the instant criminal petition is found to be devoid of merit and is dismissed accordingly. Issues: (i) Whether an initial defect in authorization for instituting a complaint under Section 138 of the Negotiable Instruments Act, 1881 (filed in the name of a company by an employee without a prior board resolution) is a curable defect; and whether permitting the complainant to adduce subsequent evidence (board resolution and fresh power of attorney) after institution of the complaint amounted to impermissible filling of lacunae in the prosecution case.Analysis: The legal framework includes Section 138 and Section 142 of the Negotiable Instruments Act, 1881 governing complainant standing, and Sections 311, 401 and 482 of the Code of Criminal Procedure, 1973 governing adducing evidence, court powers and quashing jurisdiction. Authorities establish that a company acts through natural persons and that initial absence of a board resolution or formal authorization to file proceedings is ordinarily a curable defect capable of subsequent ratification. Precedents distinguish between matters that must be decided on prima facie material at cognizance and matters of factual dispute to be tried; dismissal at the threshold for lack of authorization is generally disfavoured where prima facie material shows the complaint is in the name of the payee and an authorised representative is indicated. Where subsequent board resolution and fresh power of attorney are brought on record, such documents may validate earlier proceedings and cure initial infirmities, leaving contested questions of authorization and knowledge to trial rather than to a quashing petition under Section 482 CrPC.Conclusion: The initial defect in authorization was curable and permitting the complainant to adduce the subsequent board resolution and fresh power of attorney did not amount to impermissible filling of lacunae; the petition to quash the proceedings is dismissed (resulting in dismissal of the criminal petition and continuation of the trial).Ratio Decidendi: An initial absence of formal board authorization for a company to institute proceedings under Section 138 of the Negotiable Instruments Act, 1881 is a curable defect which can be validated by subsequent ratification or evidence; prima facie material showing the complaint in the name of the payee and representation by an authorised person suffices for cognizance and contested authorization issues are for trial, not for quashing under Section 482 CrPC.