Introduction:

In a significant pronouncement clarifying the evidentiary standards applicable to cheque dishonour prosecutions initiated by companies, the Kerala High Court in Pattasseril Private Ltd. and Ors. v. State of Kerala and Anr., Crl.R.P. No. 541 of 2017, reported as 2026 LiveLaw (Ker) 72, set aside the concurrent conviction of an accused company and its directors under Section 138 of the Negotiable Instruments Act, 1881, holding that a company may be represented by a power of attorney holder only if such representative either witnessed the transaction or had direct knowledge of it. The revision petition was heard and decided by Justice P.V. Balakrishnan, who undertook a close examination of the relationship between corporate personality, agency, and the statutory presumptions under the NI Act. The case arose out of a commercial transaction between two companies, wherein the accused company had purchased cement from the complainant company and issued a cheque for ₹8,71,695 towards discharge of the alleged liability, which upon presentation was dishonoured due to insufficiency of funds. A complaint was thereafter filed under Section 138 NI Act by the complainant company through a purported power of attorney holder. The trial court convicted the accused company and its directors, imposing a fine on the company and sentencing the individual accused to simple imprisonment along with substantial compensation. The appellate court affirmed the conviction, following which the accused approached the High Court in revision. The High Court was thus called upon to consider whether a conviction under Section 138 NI Act can be sustained when the complaint is instituted and prosecuted by a power of attorney holder who neither witnessed the transaction nor possessed direct knowledge of the execution of the cheque, and when the foundational requirement of proving execution itself was in serious doubt.

Arguments of Both Sides:

The petitioners, represented by Advocate Varghese C. Kuriakose, assailed the judgments of the courts below on the ground that the very initiation and prosecution of the complaint suffered from fatal legal infirmities. It was argued that though the complainant was a juristic person and therefore entitled to act through a human agency, the law mandates that such agency must be properly authorised and competent to depose to the facts in issue. The petitioners pointed out that the alleged power of attorney authorising the representative to prosecute the complaint was never produced before the trial court, thereby rendering the locus of the complainant’s representative doubtful from the outset. More critically, it was contended that even assuming authorisation, the power of attorney holder, when examined as a witness, candidly admitted that he had no personal or direct knowledge of the transaction between the parties, that he had not witnessed the issuance or execution of the cheque, and that he was deposing solely on the basis of company records collected after the event. He further admitted that he could not identify the handwriting or signature of the person who issued the cheque. On this basis, the petitioners argued that the complainant had failed to discharge the initial burden of proving execution of the cheque, which is a sine qua non for the statutory presumptions under Sections 118 and 139 of the NI Act to arise. It was submitted that the courts below had mechanically invoked the presumptions without appreciating that such presumptions operate only after execution is proved, and that in the absence of a competent witness with direct knowledge, the prosecution collapses at the threshold, leaving no burden on the accused to rebut anything. The petitioners emphasized that corporate status cannot dilute the rigour of criminal proof and that permitting convictions based on testimony of persons with no personal knowledge would amount to converting statutory presumptions into irrebuttable fictions, contrary to settled law. The State and the complainant, on the other hand, supported the conviction, contending that the complainant being a company was entitled to act through an authorised representative and that production of documentary evidence, including the dishonoured cheque, bank memo, and statutory notice, was sufficient to attract presumptions under the NI Act. It was argued that minor deficiencies in authorisation or personal knowledge should not defeat the object of Section 138, which is to enhance the credibility of commercial transactions and prevent abuse of negotiable instruments. The respondents maintained that the accused had admitted business dealings with the complainant and issuance of cheque, and therefore could not escape liability on technical grounds.

Court’s Judgment:

Justice P.V. Balakrishnan, after an exhaustive analysis of the statutory scheme and judicial precedents, accepted the contentions of the petitioners and held that the conviction was legally unsustainable. The Court began by reaffirming that a company, being a juristic person, cannot act on its own and must necessarily function through human agency, and that there is no legal impediment to a company initiating proceedings under Section 138 NI Act through an authorised person. However, the Court drew a crucial distinction between mere authority to represent and competence to prove facts in issue, holding that even an authorised power of attorney holder must either have witnessed the transaction or possess direct knowledge of it. The Court noted with concern that the complainant company had not produced the power of attorney at all, thereby failing to establish even the formal authority of its representative. More importantly, the Court highlighted the admissions of the power of attorney holder during evidence, wherein he conceded lack of personal knowledge of the transaction, inability to identify the handwriting on the cheque, and reliance purely on records. The Court categorically held that a person who became associated with the company after the transaction and who relies solely on records cannot prove execution of the cheque or the transaction itself. Emphasising the foundational nature of proof of execution, the Court clarified that the presumptions under Sections 118 and 139 NI Act do not arise automatically on mere production of a cheque, but only after execution is proved by legally admissible evidence. The Court observed that merely because the complainant is a juristic entity, it does not dilute the rigour of proof required in a criminal prosecution, and execution cannot be presumed in the absence of direct evidence. The Court further held that when the complainant’s witness lacks direct knowledge or has not witnessed the execution of the cheque, the prosecution fails at the threshold itself, and there is no occasion for shifting the burden onto the accused. On this reasoning, the Court found that both the trial court and the appellate court had erred in law by invoking statutory presumptions without ensuring that the foundational facts were proved. Consequently, the High Court allowed the revision petition, set aside the conviction and sentence imposed on the petitioners, and acquitted them of the offence under Section 138 NI Act, thereby restoring the principle that criminal liability under cheque dishonour law must rest on credible proof and not on paper authority alone.