A legal representative cannot be a holder of a cheque

The Kerala High Court on 9 October, 2009 in Sreeju Vs. State of Kerala ruled that “no Court shall take cognizance of an offence unless the complaint is lodged either by the ‘payee’ or the ‘holder in due course’.”

Justice K. Hema observed that a person cannot come under the definition of “holder in due course”  not being an “indorsee”.

In this case, Complaint filed and notice issued by payee’s father and there is no such direction on the cheque in favour of a specified person, as required in Section 16. A perusal of the cheque will show that there is no direction in the cheque to pay the amount in favour of the father. Therefore, the father who has styled himself as the complainant cannot be said to be an “indorsee” as per section 16. A person cannot be said to be a holder of a cheque merely because he is having a right as a legal representative.

# Holder in due course’

The Court also held that “notice issued by neither the ‘payee’ nor the ‘holder in due course’ cannot be treated as a valid notice.

“A person who is entitled to receive or recover the amount due as per the cheque from the parties to the cheque is the ‘holder’ provided it is further established that such person is also entitled to be in possession of the cheque in his own name,” the judgment said.

In addition to affixing signature, the maker of the cheque has to add a direction to pay the amount to a specific person or to the order of a specified person. A person so specified alone can be said to be the “indorsee” of the instrument.

A payee may not be treated as a ‘holder’ under certain circumstances, since he cannot be said to be a person entitled in his own name to the possession of the cheque. Occasions will arise wherein a person who desires to draw money from the bank will issue a cheque in the name of his servant or another person as the ‘payee’ and he is shown as ‘payee’ only for the purpose of drawing the money from the bank.

But such a person (payee) cannot be said to be entitled in his own name to the possession of the cheque. His possession is only on behalf of the maker or the drawer of the cheque. Even though he is entitled to receive and recover the amount from the bank, it can be done only on behalf of the drawer and the entitlement is not in his own name.

Unless a person is a ‘holder’, he cannot be presumed to be the ‘holder in due course’, under section 118(g). A ‘holder’ of a Negotiable Instrument Act can be presumed to be a ‘holder in due course’ provided certain requirements as stated in Section 118(g) are satisfied. The burden of proving that the ‘holder’ is a “holder in due course” also lies upon the person who claims himself to be the holder.

This petition is filed to quash the complaint filed against the petitioner alleging offence under section 138 of Negotiable Instrument, Act.

A complaint was filed against petitioner by second respondent herein, on the allegation that 6,00,000/- was handed over to accused to be given to seek admission in a college. Out of this amount, only 4,00,000/- was given by accused to the college authorities. He promised to pay the balance amount of 2,00,000/- also to them. Since the amount was not paid by accused, complainant’s father somehow raised the amount and paid it.

Advocate Prakash P. George appeared for the petitioner / accused and Public Prosecutor B. Vinod for the State of Kerala and Senior Advocate T. Krishnan Unni for the Respondent No.2.