Demand notice

Case BriefsTribunals/Commissions/Regulatory Bodies

National Consumer Disputes Redressal Commission (NCDRC): Coram of C. Viswanath (Presiding Member) and Justice Ram Surat Ram Maurya (Member) decided an issue with regard to handing over of possession of flat and cancellation of sale agreement in a builder — buyer dispute.

Arun Kedia (HUF), Arun Kedia and Sabita Kedia (Husband and Wife), members of HUF filed the present complaint.

What led to the filing of the complaint?

OP 1 made advertisements from time to time, inviting applications from prospective buyers for the purchase of the flats.

In 2013, complainants approached the OP and booked a residential flat for purchase and deposited booking charges, in the office of the OP. In June, 2013, a registered sale agreement was executed between the parties. By that time the complainant had deposited an amount of Rs 73,51,426 in the office of the OP. The balance amount was to be paid in instalments.

Complainants paid the amount of instalments as mentioned in the agreement as and when it was demanded by the OP. According to the complainants, thereafter they neither received any demand letter nor possession of the allotted flat was handed to them till March, 2016. They received a demand letter but as in this letter no date of delivery of possession was mentioned as such, they did not deposit the amount demanded in it, rather wrote letters requesting to handover possession over the flat allotted to them.

It was also stated that the complainants were not allowed to go to the site and verify the progress in construction. OP assured the complainants that they would be given possession within a short time.

When the registered notice was served to the OP, they unilaterally cancelled the agreement, mentioning therein that in spite of the demand letter, they had not deposited the instalment as fixed in the agreement.

Complainants requested and sent registered notices to OP to cancel the agreement and hand over the possession, but since the notices were not complied with, the present complaint was filed.

Analysis, Law and Decision

Whether the complainants were defaulter in payment of instalments as fixed in the agreement in spite of the notice given by the OP, they failed to pay it within 7 days and hence the OP exercised its power under the agreement and revoked the agreement?

OR

OP had failed to complete the construction till March 2016 and in order to cover its default, the agreement was cancelled in a high-handed manner, to harass the complainants and divert their mind from asking possession?

Bench noted that the agreement fixed reciprocal liabilities upon both parties.

Further, it was added that if the opposite party has not abided by the terms of the agreement and committed a serious breach then it cannot blame the complainants that they have not deposited the instalments well within time or within seven days issue of the letter of demand.

Commission held that there was nothing on record to prove that the demand letters were actually issued to the complainants. Therefore, the allegation that the complainants committed default in payment on instalment for which the agreement was cancelled was not proved.

Adding to the above reasoning, Clause-14 of the agreement requires service of 30 days prior notice in writing of its intension to terminate the agreement. No such notice was issued by the opposite party to the complainants. Cancellation of agreement, of which the intimation was given through letter, was illegal. 

Coram held that there was nothing on record to show that till March, 2016, the construction was completed and a completion certificate was obtained from the competent authority.

According to Section 8 of the Maharashtra Ownership of Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963, if the builder is not able to hand over the possession over the building/flat within the time specified in the agreement then the builder is liable to pay interest to the purchaser of the flat for the period for which the possession has not been handed over.

Due to latches on the party of the OP, the complainants suffered a loss. The agreement for sale had been cancelled illegally and malafide, in a high handed manner and the complainants were forced into litigation.

Commission directed the OP to handover the possession to the Complainants after taking balance sale consideration within 2 months and execute the final deed of transfer. OP shall also pay simple interest @6% p.a.to the complainants on the amount deposited by them from the due date of possession to the offer of possession after obtaining the Occupancy Certificate.  [Arun Kedia (HUF) v. Runwal Homes (P) Ltd., 2021 SCC OnLine NCDRC 189, decided on 24-06-2021]

Advocates before the Commission:

For the Complainant: Mr. R.M. Kedia, Advocate

Ms. Sabita Kedia, Complainant in person

For the Opp. Party: Ms. Anita Marathe, Advocate

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): The Division Bench of Venugopal M (Judicial Member) and Alok Srivastava (Technical Member) held that a demand notice is a forerunner to the commencement of insolvency proceedings against a corporate debtor. Unpaid demand notice is good enough to exhibit the debtor’s inability to pay its debts for bankruptcy proceedings. If a bonafide dispute is established then an ‘Insolvency’ petition is not the appropriate proceeding to determine the validity of a disputed debt.

On being aggrieved with the decision of National Company Law Tribunal, Mumbai, the present Company Appeal was preferred by the appellant.

Appellant submitted that no ‘Demand Notice’ was ever served on the Corporate Debtor/Second Respondent as per Section 8 of the Insolvency and Bankruptcy Code.

Tribunal’s Assessment

Tribunal noted that the appellant’s plea stated that the alleged Demand Notice of the respondent 1 was sent to an address and the same was not registered address of the ‘Corporate Debtor’ as per the master data of the ‘Corporate Debtor’ on MCA website.

Further, it was submitted by the appellant that the Demand Notice was knowingly addressed to the wrong address of the ‘Corporate Debtor’ by respondent 1.

Tribunal expressed that:

As per Section 8 of the I&B Code an Operational Creditor is required to deliver a demand notice on the occurrence of the default within ten days from the receipt of the demand notice, the Corporate Debtor shall bring to the notice of the Operational Creditor ‘the existence of the dispute’, if any, and the record of the pendency of the suit or arbitration proceedings before the receipt of such notice or invoice in relation to such dispute.

While proceeding with discussion in the above matter, Bench also stated that a change in address of the registered office of the ‘Corporate Debtor’ cannot be a ruse for the failure of the party concerned to send/issue a ‘Demand Notice’ as per Section 8 of the I&B Code. In fact, serving the demand notice to the corporate debtor is mandatory.

“If a demand notice payment under the code is issued, the ‘Corporate Debtor’ will appreciate in right earnest the consequences flowing on account of failure to pay the ‘operational debt’. Also, that . after transfer of the case form High Court to Tribunal (in respect of winding up petition) an Operational Creditor is required to submit all information including the details of the proposed Insolvency Professional.”

Tribunal opined that service of ‘Demand Notice’ to the second respondent is mandatory as per Section 8 of the Code.

Further the Bench while making observations in the present matter also added that it cannot be forgotten that the proceedings under Section 138 NI Act pertain to criminal liability for dishonour of cheques issued and do not bar an application under Section 9 of the Code. Likewise, the pendency of proceedings under Order 37 of the civil Procedure Code will not prohibit an application under Section 9 of the Code.

While concluding, the Tribunal held that:

Since the ‘Service of notice’ at the registered address of the ‘Corporate Debtor’ was not established to the subjective satisfaction of the Tribunal and the admitted fact being that the notice sent to the second respondent at its registered office got returned, the said admission of debt and the reference with regard to NI Act that a holder of cheque received the cheque for the discharge either in whole or in part of any debt or other liability will not in any way heighten or improve the case of appellant.

Since the notice as per Section 8 of I&B Code was not served upon the corporate debtor and the same got returned, NCLT’s decision is to be set aside.

Hence NCLT’s order is to be declared as illegal in appointing the ‘Interim Resolution Professional’ declaring moratorium and all other orders passed.  Corporate Debtor is therefore released from all the rigour of law and is allowed to function independently through its Board of Directors.

Before parting, Tribunal granted liberty to the Operational Creditor to issue a fresh notice under Section 8 of I&B Code and on receipt of such notice of service if there is ‘Debt and Default’ to file a fresh application under Section 9 IBC. [Shailendra Sharma v. Ercon Composites, 2021 SCC OnLine NCLAT 3, decided on 13-01-2021]

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): The Coram of S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) allowed an appeal which involved the admissibility of Cenvat credit by the appellants Bhoruka Aluminium Limited (BAL) Bhoruka Extrusions Private Limited (BEPL).

The counsel for the appellant,  Gaurav Shah submitted that BAL wanted to sell the Aluminium extrusion business since they were not able to run the same effectively and availed the services of Singhi Advisors for identifying a buyer for the specific business division, undertaking adequate negotiations and following due diligence; From the invoice and the agreement it is very clear that Singhi Advisors was appointed by BAL to find a suitable buyer for the companies Aluminium extrusion business; Singhi were also fully responsible for providing required documents. He further submitted that on the completion of the service and based on the service provider‟s advice, the Aluminium extrusion business of BAL was sold to BEPL (Fully owned by YKK Holdings, Japan) on a slump sale/going concern basis; the sale was that of the unit and not that of the shares of the company which was contrary to the findings of the Adjudicating Authority; as the appellants availed a service which was in the nature of legal and financial services and was availed in relation to the running the factory and manufacturing of the final excisable product, though indirectly, they availed credit.

The Tribunal after perusing the records found that it would be beneficial to look at the statutory provisions defining the input service under Rule 2(l) of Cenvat Credit Rules, 2004 from which it can be found that one was the substantive part and the other was the inclusive part. The Tribunal further explained that the nomenclature and the classification of services was secondary and just because the appellants could not classify the service availed under a particular head, it does not take away the substantial right of the appellants to avail the credit if it is otherwise permissible under the rules.

The Tribunal while allowing the appeal found that the intent of the appellant as seen from the correspondence available on record was not to wind up the company. The intent was very clear to sell or transfer the business, obviously the manufacturing activity, to any person or company who would manage the manufacturing activity i.e., to produce and sell the goods. Therefore, from a wider perspective, the efforts of the appellants were in the direction of continuation of the manufacture of final products and their removal from the factory. The Tribunal held that appellants had submitted that the said credit was not allowed to be transferred to the new unit in terms of Rule 10 of CCR 2004; they had not utilised the credit and even then, the department had issued a demand notice for payment back of credit which was not legally sustainable.[Bhoruka Extrusions (P) Ltd. v. C.C., C.E. & S.T.,  2021 SCC OnLine CESTAT 1, decided on 04-01-2021]

Suchita Shukla, Editorial Assistant has put this story together

Case BriefsHigh Courts

Tripura High Court: S.G. Chattopadhyay, J., highlights the essence of the provisions of Negotiable Instruments Act, in light of the object of a statutory notice.

It has been stated that the Courts below have concurrently held that the respondent has already established his case under the provisions of Section 138 of Negotiable Instruments Act, 1981 against the accused, who is the present petitioner.

The present petitioner was convicted for committing an offence under Section 138 of the Negotiable Instruments Act and he/she was penalised for a sentence of 1 year along with a fine of Rs 7,00,000.

Session Judge had also affirmed the above decision of the Chief Judicial Magistrate while reducing the sentence to fine and directing the petitioner to pay only Rs 4,00,000.

Being aggrieved with the above, the present criminal revision petition was filed.

Facts

Since both the petitioner and respondent were on good terms and known to each other, the petitioner used to borrow money from the respondents and repay the same in time. On 15-01-2014, he took a loan of Rs 3,50,000 and promised to repay the money within 30-11-2014.

On being requested for the above-amount, past the said date, petitioner handed over a cheque to the respondent but the said cheque was returned with an endorsement “insufficient funds”.

Demand Notice was issued with 15 days of time given for the repayment of the said amount. Every time that the postman visited the house for the service of the demand notice, housemates of the petitioner refused to receive the said letter and said that the petitioner was out of station.

Hence, in view of the above circumstance, the notice was returned to the respondent.

Later the matter reached the trial and the petitioner was convicted under Section 138 NI Act.

Misutilization of the Cheque

Petitioner contended in regard to the cheque that the accused had never issued any cheque in discharge of any debt or liability, but only a blank cheque was issued as a security for the loan which was borrowed by him from the complainant and after the loan was repaid, the complainant, instead of returning the cheque, misutilized it against him.

Statutory Presumption

Respondent’s counsel submitted that the presumption under Section 139 read with the Rule of Evidence as provided under Section 118, NI Act with regard to the existence of debt or liability is not a discretionary presumption, it is a statutory presumption which is obligatory on the part of the Court. Hence, a heavy burden is cast on the accused to rebut such presumption.

Further, the counsel added that apart from making mere denial of the existence of debt or liability, the accused did not lead any evidence to prove that he had no legal liability to be discharged and as such the courts below had drawn the statutory presumptions against him.

Section 138 NI Act requires proof of the essential ingredients:

  • there is legally enforceable debt
  • a cheque is drawn on an account maintained by the accused with his banker for payment of any amount to another person from his account in the discharge in whole or in part of the debt or liability
  • the cheque is returned by the bank unpaid, either because of the insufficient fund in the account of the accused to honour the cheque or that the cheque amount exceeds the amount arranged to be paid from that account by an agreement made with the bank.

Bench noted that the petitioner in his defence merely offered an explanation throwing suggestion to the prosecution witnesses in their cross-examination that he gave a blank signed cheque as security and did not deny the fact that he borrowed loan from the complainant.

Question for consideration:

In the instant matter, whether such an explanation offered by the petitioner is enough to disprove the statutory presumptions under Sections 138 and 139, NI Act?

In the decision of Hiten P. Dalal v. Bratindranath Banerjee, (2001) 6 SCC 16, Supreme Court that the presumptions to be drawn by the court under Sections 138 and 139, NI Act are presumptions of law which cast the evidential burden on the accused to disprove the presumptions.

Further, in the case of Mallavarapu Kasivisweswara Rao v. Thavikonda Ramulu Firm, (2008) 7 SCC 655, it was held that it is a settled position that the initial burden lies if the accused to prove the non-existence of consideration.

Decision

Bench on perusal of the above held that the explanation offered by the accused petitioner is not founded on proof and it does not stand to reason.

The object of the statutory notice is to protect an honest drawer of the cheque by providing him with a chance to make the fund sufficient in his bank account and correct his mistake.

Accused had an opportunity to explain himself, he instead repeatedly avoided the service of demand notice and did not state that he already has the repayment of the loan.

Therefore, Court held that the prosecution successfully discharged its burden in proving the case against the petitioner with the help of the statutory presumptions under the NI Act, and the accused failed to rebut those presumptions and prove the contrary by offering provable explanation founded on the proof.

Adding to the above, Bench also observed that the overall conduct of the accused depicted that he wanted to avoid the service of the notice. Impugned judgment by the below courts does not require any interference and the conviction and sentence were upheld by the High Court.

Bench directed the fine of Rs 4,00,000 within a period of 2 months.[Nitai Majumder v. Tanmoy Krishna Das, 2020 SCC OnLine Tri 537, decided on 17-11-2020]

Case BriefsHigh Courts

Kerala High Court: A.M. Badar, J., while addressing the instant matter held that, demand notices under Section 13(2) of the SARFAESI Act can be challenged before the Debt Recovery Tribunal (DRT).

The instant petition was filed by four Cashew Processing Units.

Petitioners were impugning demand notices issued under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) to petitioners 1 to 3 directing them to repay to the secured creditor the outstanding amount of loan within the prescribed statutory period.

Petitioners Counsel argued that as Cashew Processing Units in the State were in crisis and at the verge of closure, respondent 2–State of Kerala constituted a Cashew Revival Committee.

Further, a Revival Scheme for Cashew Processing Industries came to be formulated as per the decision taken by the Government of Kerala as well as the State Level Bankers Committee. Cashew Processing Units prima facie found liable for revival were referred to concerned Banks for taking up the restructuring process.

Respondent 1-Bank failed to check stock statements, balance sheets etc. and started taking steps under SARFAESI Act by issuing notices under Section 13(2) of the said Act.

Analysis and Decision

Bench stated that a Committee was constituted by the State for assessing the viability of Cashew Processing Unit facing crisis.

It was noted that though the cases of two of the petitioners were recommended for additional finance, the duly sworn statement of respondent 1 — bank made it clear that petitioners 1 to 3 failed to produce documents necessary for viability study.

Court noted that the instant writ petition has been filed to stop SARFAESI proceedings by virtually challenging demand notices issued under Section 13(2) thereof.

Supreme Court in the decision of Authorised Officer, State Bank of Travancore v. Mathew K.C., 2018 (1) KLT 784,  held that:

“5. …….The discretionary jurisdiction under Article 226 is not absolute but has to be exercised judiciously in the given facts of a case and in accordance with law. The normal rule is that a writ petition under Article 226 of the Constitution ought not to be entertained if alternate statutory remedies are available, except in cases falling within the well-defined exceptions as observed in CIT v. Chhabil Dass Agarwal, (2014) 1 SCC 603.

In Union Bank of India v. Panchanan Subudhi, (2010) 15 SCC 552, further proceedings under Section 13(4) were stayed in the writ jurisdiction subject to deposit of Rs. 10,00,000/- leading this Court to observe as follows :

“7. In our view, the approach adopted by the High Court was clearly erroneous. When the respondent failed to abide by the terms of one-time settlement, there was no justification for the High Court to entertain the writ petition and that too by ignoring the fact that a statutory alternative remedy was available to the respondent under Section 17 of the Act.”

Concluding the decision, Court held that the petitioners have the most efficacious remedy of challenging demand notices under Section 13(2) of the SARFAESI Act before the Debt Recovery Tribunal.

Adding to the above, Court stated that, it is not case of petitioners that the Bank has not acted in accordance with the provisions of the SARFAESI Act or in defiance of the fundamental principles of judicial procedure.

Bench held that no case for breach of principles of natural justice is made out in the present case.

In view of the above, the petition was dismissed. [Sunitha Roy v. Canara Bank,  2020 SCC OnLine Ker 5120, decided on 13-11-2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): The Bench of Justice Bansi Lal Bhat (Acting Chairperson) and Justice Anant Bijay Sing (Judicial Member) and Kanthi Narahari (Technical Member) set aside the Adjudicating Authorities decision while establishing whether a pre-existing dispute existed between the parties.

The instant appeal was filed against the order of the National Company Law Tribunal, New Delhi wherein the application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 by the respondent was admitted.

Pre-Existing Dispute

Aggrieved by the above, suspended director of the Corporate Debtor filed the present appeal challenging the admission and initiation of Corporate Insolvency Resolution Process against the Corporate debtor for the reason that there is a pre-existing dispute between the Corporate Debtor and the Operational Creditor.

Brief facts

Corporate Debtor invited tender in carrying out electrical works and respondent/Operational Creditor was assigned the same. In terms of the agreement and Letter of Intent, the payment terms were specifically incorporated therein.

In terms of LOI, a specific mention the time of completion is the essence of the contract and milestones were accordingly incorporated. The work was to be completed within 120 days. However, the work was delayed and the same was communicated by the Operational Creditor.

Further, it was submitted that the Operational Creditor has not completed the work and the Corporate Debtor time and again reminded Operational Creditor to complete the work by pointing out the defects.

Issue for Consideration

Whether there is an existence of dispute prior to the issuance of Demand Notice dated 11-04-2019 or not?

Bench noted that various email were exchanged between the parties. Respondent addressed to the appellant whereby it had been stated that the project was delayed much beyond the original schedule leading to enhanced overheads and stated that they needed funds to source materials with respect to work progress.

Deficiency in Service

Tribunal opined that the Adjudicating Authority instead of taking technical objection that the email dated 29-04-2019 may not be a response to the demand notice issued by respondent, however, the contents raised by the appellant should have been taken into consideration for the purpose of deciding the issue to elucidate any pre-existing dispute keeping in view of the trail of exchange of e-mails regarding deficiency in service.

Letters/e-mails of respondent dated 29-12-2018:

“Dear Sir,

We are handing over Electrical Works, Documents Details at Triumph Resort 336/1A, village Calwaddo, Benaulim, Goa- 403716.”

From the perusal of correspondences between the Appellant and Respondent, Appellant/Corporate Debtor submitted that the Respondent did not complete the project in time thereby the Project got delayed thereby they suffered losses. On the other side, the stand of Respondent/Operational Creditor that they completed the project and handed over to the Appellant/Corporate Debtor, however, Appellant/Corporate Debtor failed to pay bills even after completion of the project.

Bench stated that it is unequivocal that there exists a dispute between the parties prior to the issuance of Demand Notice dated 11-04-2019.

Adjudicating Authority instead of taking a technical objection that the Appellant/Corporate Debtor did not respond to the Demand Notice issued by the Respondent/Operational Creditor within the statutory period of 10 days as contemplated under Section 8(2) of IBC, should have analysed the documents placed before it, before taking such objection.

Tribunal observed that it is bound by the Supreme Court decision in, Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC 353, wherein it was held that:

“…Within a period of 10 days of the receipt of such demand notice or copy of invoice, the corporate debtor must bring to the notice of the operational creditor the existence of a dispute and/or the record of the pendency of a suit or arbitration proceeding filed before the receipt of such notice or invoice in relation to such dispute [Section 8(2)(a)]. What is important is that the existence of the dispute and/or the suit or arbitration proceeding must be pre-existing i.e. it must exist before the receipt of the demand notice or invoice, as the case may be.”
Another Supreme Court decision was referred to, Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407, wherein it was decided that the dispute must exist before the receipt of the Demand Notice or Invoices as the case may be.
In Gajendra Parihar v. Devi Industrial Engineers,  2020 SCC OnLine NCLAT 274, Bench was of the view that existence of dispute prior to the issuance of Demand Notice, the Application under Section 9 IBC is not maintainable and once there is the existence of such dispute, the Operational Creditor gets out of the clutches of the Code.

Decision

Bench held that in view of the email/letters there existed a dispute prior to the Demand Notice.

Exchange of e-mails/correspondences, as referred above, clearly establishes that there is a pre-existing dispute between the parties regarding completion of the work and the Appellant/Corporate Debtor continuously made complaints regarding non-completion of work and deficiency in services, thereby loss caused to the Appellant/Corporate Debtor.

Hence, the Adjudicating Authority ought not to have admitted the application under Section 9 of IBC filed by the respondent.

Bench reiterated that,

Code is a beneficial legislation intended to put the Corporate Debtor on its feet and it s not a mere money recovery legislation for the Creditors.

In view of the above discussion, initiation of Corporate Insolvency Resolution Process is quashed and set aside.

While remitting back the matter to Adjudicating Authority, the tribunal directed Interim Resolution Professional/ Resolution Professional will hand over the assets and records to the Corporate Debtor/Promotor/Board of Director. [Umesh Saraf v. Tech India Engineers (P) Ltd.,  2020 SCC OnLine NCLAT 677, decided on 19-10-2020]

Case BriefsHigh Courts

Madhya Pradesh High Court: Rajendra Kumar Srivastava, J., while addressing a matter with regard to dishonour of cheque held that, Director/Managing Director/Joint Director/other officers and employees of company can not be prosecuted under Section 138 of NI Act unless the company is impleaded as an accused

Petitioner is aggrieved with the Order passed against him by JMFC framing a charge under Section 138 of Negotiable Instruments Act, 1881.

Complaint was filed by respondent-trade firm against the petitioner wherein it was mentioned that on account of business relations between the parties petitioner had borrowed an amount of Rs 2,00,000 from respondent, which was to be returned by within a period of four months.

In November 2017, petitioner handed over a cheque amounting to Rs 2,00,000 which when the respondent submitted in January, 2018 was dishonoured due to “stop payment” by the petitioner.

On the above-event’s occurrence respondent had sent a legal notice to the petitioner which was ignored by the petitioner and thus a complaint before JMFC was filed.

Petitioners Contention

Respondent had given the amount in question for business purpose and the petitioner had given the said cheque under the capacity of chairman of company namely ‘Well Built Industry India Ltd.’ but the respondent did not implead the company as a party in the complaint case.

The respondent/complainant also failed to specify the role of present petitioner on behalf of the company. Hence, in view of the provision of Section 141 NI Act, the proceedings under Section 138 NI Act are bad in law and deserves to be quashed. With the aforesaid, he prayed to allow this petition.

Section 138 NI Act: Dishonour of cheque for insufficiency, etc. of funds in the account.

Section 141 NI Act: Offences by Companies

“…if an offence is committed by a company under Section 138 of the Act, every person, at the time, the offence was committed, was in-charge and responsible to the company in the conduct of the business of the company, is liable along with the company to be proceeded against and punished accordingly.”

S.M.S Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89, 

“…Necessary averments ought to be contained in a complaint before a person can be subjected to criminal process. A liability under Section 141 NI Act is sought to be fastened vicariously on a person connected with a company, principal accused being the company itself. It is a departure from the rule in criminal law against vicarious liability. A clear case should be spelled out in the complaint against the person sought to be made liable.”

Bench while referring to several decisions held that the person (Director/Managing Director/Joint Director/other officers and employees) of company can not be prosecuted under Section 138 of NI Act unless the company is impleaded as an accused.

Thus, in the present matter it is to be noted that a demand notice was served only on the petitioner/accused, there was no demand notice against company, therefore, without arraying the company as an accused in complaint case, the petitioner can not be prosecuted for the offence of Section 138 NI Act.

Hence the present petition was allowed.[Bhupendra Suryawanshi v. Sai Traders, 2020 SCC OnLine MP 1277 , decided on 09-06-2020]

Case BriefsHigh Courts

Bombay High Court: Vibha Kankanwadi, J., while allowing a writ petition, quashed a complaint under Section 138 of the Negotiable Instruments Act, 1881, filed against the petitioner in a cheque dishonour case. It was held that the complaint filed by the respondent-complainant could not be treated as a “complaint” in the eyes of law.

The complainant, in her complaint, had alleged that the petitioner had taken a loan from her, which he failed to repay. He issued a cheque for the discharge of the said liability, which was dishonoured on presenting for encashment. Therefore, she filed the subject complaint before the Magistrate against the petitioner.

Aggrieved, the petitioner filed the instant petition praying for quashing of the complaint against him. His counsel, M.D. Thube-Mhase, submitted that when, as per the contents of the complaint, the accused had refused to accept the notice on 3-1-2017, the period of 15 days for the compliance after the service or refusal of the notice would have been till 18-1-2017, and the complainant could have filed the complaint on or after 19-1-2017 within the statutory period. However, when she has filed the complaint on 18-1-2017 itself, it cannot be taken as a complaint, and therefore, the complaint is liable to be quashed.

Per contra, A.N. Gaddime and A.V. Indrale Patil, counsel for the complainant, contended that though the complaint was filed on 18-1-2017, the complaint was registered on the next date, i.e., 19-1-2017, and the cognizance was taken by order of issuing process on 15-04-2017, therefore the complaint was maintainable.

The High Court considered the law as laid down in Yogendra Pratap Singh v. Savitri Pandey, (2014) 10 SCC 713, wherein the Supreme Court disapproved the view that if the complaint under Section 138 is filed before the expiry of 15 days from the date on which notice has been served on the drawer/accused, the same is premature and if on the date of taking cognizance a period of 15 days from the date of service of notice on the drawer/accused has expired, such complaint was legally maintainable.

Finally, observing that the date of 15th day or conversely the day on which the refusal was there should be excluded, the High Court held that complaint, which was filed on 18-1-2017, was definitely premature, i.e., before the expiry of 15 days of the refusal of the notice. Therefore, it was held, that the subject complaint could not be treated as a “complaint” in the eyes of law. Consequently, the writ petition was allowed and the complaint was quashed. [Afroj Khan v. Mandodra, 2019 SCC OnLine Bom 5422, decided on 12-12-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Appellate Tribunal (NCLAT): The Bench of Justice A.I.S Cheema, Member (Judicial), Kanthi Narahari, Member (Technical) and V.P. Singh, Member (Technical), allowed an appeal filed against the order of the National Company Law Tribunal, New Delhi, whereby it had admitted the petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 (for initiation of Corporate Insolvency Resolution Process), filed by the Operational Creditor  against the Flywheel Logistics Solutions (P) Ltd. (Corporate Debtor).

The material fact to note is the Operational Creditor provided freight services to the Corporate Debtor and dues were pending which were not paid by the Corporate Debtor. Hence, the Operational Creditor issued a Demand Notice under Section 8 and, subsequently, initiated the corporate insolvency resolution process. The appellant (shareholder) of the Corporate Debtor) contended that the Demand Notice served by the Operational Creditor relates to a separate corporate entity.

The question of law that arose for consideration was: “Whether the demand notice issued under Section 8 of the I & B Code 2016, against the corporate debtor, for the dues of sister concern/group company, can be treated as a valid notice?

On perusal of record, the Appellate Tribunal noted as admitted that the invoices were issued by the Operational Creditor against “Flywheel Logistics (P) Ltd.”. which was different from the Corporate Debtor, “Flywheel Logistics Solutions (P) Ltd.”. It was on record that two were different corporate entities, having different CIN Number and different registered addresses. The Appellate Tribunal observed: “It is also on record that the mandatory primary requirement for filing a petition under Section 9 of the ‘Insolvency and Bankruptcy Code, 2016’ is the service of the Demand Notice under Section 8 of the Code. The demand notice should have been served along with the copy/bill(s) / invoice(s) on the ‘Corporate Debtor’. But in the present case, the Bill / Invoice was raised against, Flywheel Logistics Private Limited, having CIN No. U60200DL2009PTC192531, whereas the mandatory demand notice under Section 8 of the ‘IBC’ has been served against the ‘Flywheel Logistics Solutions Pvt. Ltd.’ having CIN No. U60232DL2015PTC288609.”

In such circumstances, the Appellate Tribunal held that the Demand Notice issued against the Corporate Debtor was not a valid notice under Section 8 IBC. Accordingly, the appeal was allowed and the impugned order passed by the NCLT, New Delhi was set aside. [Anil Syal v. Sanjeev Kapoor, 2019 SCC OnLine NCLAT 630, decided on 08-11-2019]

Case BriefsHigh Courts

Kerala High Court: R. Narayana Pisharadi, J. dismissed a petition seeking to quash a complaint filed under Section 142 of the Negotiable Instruments Act, 1881.

The complainant and the accused were close relatives. The accused had borrowed an amount of Rs 35,00,000 from the complainant. The cheque given by the accused to repay the money was dishonored due to insufficient funds. The complainant received intimation of this on 13-02-2014 and he sent a notice regarding the same to the accused on 15-02-2015 which was received by him on 17-02-2014.

The learned counsel for the petitioner, K.B. Pradeep, submitted that no demand for payment of the amount of the cheque was made by the complainant as per the notice sent by him under clause (b) of the proviso to Section 138 of the Act and therefore, the notice was defective and the proceedings initiated against the petitioner pursuant to such notice could not be sustained.

The counsel representing the complainant, K.K. Dheerendrakrishnan, contended that the requirement under clause (b) of the proviso to Section 138 of the Act had been complied with.

The High Court observed that a demand for payment of the amount of the cheque by sending a notice in writing was an essential condition for filing such a complaint was a condition precedent for filing a complaint about an offence under Section 138 of the NI Act. The Court relied on K.R. Indira v. G. Adinarayana, (2003) 8 SCC 300 in which it was held that if no demand for payment of amount was made, the notice would fall short of its legal requirement. The Court, on a perusal of the said notice, found that demand of payment of the amount was made in the notice sent by the complainant. In view thereof, the Court held that the impugned notice was meeting the requirements as under Section 138(b) of the Act. The Court also declined the petitioner’s contention that the notice was defective as the nature of the debt or liability was not mentioned. It was held that there was no statutory mandate that the notice should narrate the nature of debt or liability. All the other pleas of the petitioners were not sustained as they were pertaining to questions of facts and the Court held that it would not express its view on disputed questions of fact in a petition under Section 482 of the Criminal Procedure Code, 1974.

In view of the above, the Court held that the impugned notice met the requirement under Clause (b) of the proviso to Section 138 of the Act and hence the petition to quash the said complaint was dismissed.[B. Surendra Das v. State of Kerala, 2019 SCC OnLine Ker 1624, decided on 20-05-2019]

Case BriefsHigh Courts

Jharkhand High Court: Anil Kumar Choudhary, J. dismissed an interlocutory application praying for grant of special leave under Section 378(4) of the Code of Criminal Procedure against a judgment passed by Judicial Magistrate, Jamshedpur on the grounds of probable violation of the settled principle of law.  

The appellant-complainant granted a friendly loan of Rs 35,000 to accused-respondent 2 which was not paid back and the same was demanded back. The accused-respondent 2 issued a cheque in pursuance of the same demand, however, it was dishonored due to lack of funds in the bank account. Thereafter, a notice was issued which was never acknowledged by the accused-respondent 2 and consequently a complaint under Section 138 of Negotiable Instruments Act, 1881 was filed. The trial court, however, acquitted the accused-respondent 2 by concluding the complaint to be premature. 

Issue: whether there exists a prescribed period for filing a complaint to retrieve loan amount or can the same be done at any time after the issuance of notice. 

The appellant-complainant was represented by Mukesh Kumar Dubey who submitted that the trial court was mechanical in it’s approach and ignored the fact and law. Further, it was contested that the judgment is perverse and hence, the special leave should be granted.  The defense was represented by the Additional Public Prosecutor who submitted that a settled principle of law should not be hampered by such appeals. It was contended that in case of notice is not received by the payee, presumption of notice would be on the 30th day from the date of issuance and only after waiting for the statutory period of 15 days the amount would be payable. Therefore, at the earliest, the complaint can be filed after 45 days from the issuance of notice. It was contested that since the complaint was issued only in 22 days therefore, special leave should not be granted.  

The Court after considering all evidences presented concluded that the trial court acted in consonance with the settled principle of law which required a minimum of 45 days from the issue of notice of demand in case there exists no evidence to suggest receipt of notice by the concerned parties. Further, relying on Subodh S. Salaskar v. Jayprakash M. Shah, (2008) 13 SCC 689, the court affirmed the mandated requirement of 30 days from the date of issuance of notice and held that the complaint is premature. Therefore, special leave was not to be granted. [Shyam Sundar Singh v. State of Jharkhand, 2019 SCC OnLine Jhar 768, decided on 20-06-2019]

Case BriefsHigh Courts

Tripura High Court: The Bench of Arindam Lodh, J. allowed a revision petition under Section 397 read with Section 401 of Code of Criminal Procedure, 1973 and set aside the lower courts’ order acquitting the accused in a case filed under Section 138 of the Negotiable Instruments Act, 1881.

Petitioner herein (complainant before lower court) gave a loan of Rs 3.6 lakhs to the accused in three installments against which the respondent issued three post-dated cheques. When the petitioner tried to encash these cheques, they were dishonoured with the remark ‘insufficient funds’ in the account of the respondent. The petitioner served a statutory demand notice upon the respondent which went unresponded. Thereafter, he filed a complaint in the Trial Court charging the accused for dishonour of cheque. The Trial Court dismissed the case holding that the demand notice was invalid as it did not bear the signatures of petitioner’s Advocate.  Respondent’s acquittal was affirmed and upheld by the learned Sessions Judge. Aggrieved thereby, the instant revision petition was filed.

The Court opined that the decisions arrived at by the lower courts were perverse and unwarranted on both the points of facts and law, hence not sustainable. It was held that Section 138 proviso (b) does not stipulate that the notice is to be sent through an advocate. Further, each page of the demand notice had been signed by the complainant himself, and thus it was a valid notice in terms of Section 94 of the NI Act. It was observed that the object of notice of dishonor of cheque to endorser is not to demand payment, but to indicate to the party notified that his contract arising on the negotiable instrument has been broken and he is liable for payment.

Reliance was placed on Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Ltd., 2016 SCC Online SC 954, where it was held that a post-dated cheque issued as security towards payment of installments of a loan transaction falls within the purview of Section 138 NI Act. In view thereof, it was held that the respondent was liable under Section 138 of NI Act, and he was ordered to pay a fine of Rs 3,60,000 to the petitioner as compensation, failing which, he would be sentenced to simple imprisonment of six months.[Subal Chandra Ghosh v. State of Tripura, 2019 SCC OnLine Tri 134, decided on 25-04-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal, Mumbai Bench: This Bench comprising Mr V.P. Singh and Mr Ravikumar Duraisamy as members dismissed a petition filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 for initiation of corporate insolvency resolution process (CIRP), holding that the same had been filed on wrong facts by giving false information.

Petitioner approached the respondent to render certain services at its manufacturing plant in Tamil Nadu, for which it made an advance payment of Rs 44, 00,000. However, despite repeated reminders, respondent failed in the scheduled delivery. Petitioner, vide a legal notice, called upon the respondent to return advance payment and also compensate it for the financial loss suffered. Thus, the present petition was filed for initiation of against the respondent.

Petitioner submitted particulars of claim, records of respondent’s bank account, bank certificate and demand notice. Respondent filed counter affidavit highlighting irregularities in the instant petition. It was also submitted that delay was on account of the modification instructions given by the employees of petitioner and that the petitioner was not really interested in getting his work done but only interested in making a claim against respondent.

The Tribunal opined that Operational Debt as defined under Section 5(21) of the Act means “a claim in respect of the provision of goods or services including employment or debt in respect of the repayment of dues arising under any law.” Refund of advance money was not in connection with the goods/services including employment or a debt in respect of repayment of dues.

Further, the petitioner ought to have crystallized the damages then only, it could have claimed the amount of compensation. The alleged compensation amount had not even been quantified by the petitioner. Since petitioner’s claim had not been adjudicated by any competent authority in law, hence, it could not be described as operational debt.

In view of the above, it was held that petition had been filed with an ulterior motive to get insolvency petition admitted. Thus, the petition was dismissed imposing a cost of Rs 10 lakhs on the petitioner.[TATA Chemicals Ltd. v. Raj Process Equipments and Systems (P) Ltd., CP 21/I&BP/NCLT/MAH/2018, Order dated 30-11-2018]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): A two-member bench comprising of Justice S.J. Mukhopadhaya, Chairperson and Bansi Lal Bhat, Member (Judicial) allowed an appeal filed challenging the proceedings initiated under Section 9 Insolvency and Bankruptcy Code, 2016.

The appellant preferred the present appeal against the proceedings initiated by the National Company Law Tribunal, New Delhi by admitting an application under Section 9 filed by the respondent. Vide the order impugned,  the NCLT admitted the said application, passed the order of moratorium, and appointed the Interim Resolution Professional. The appellant, Corporate Debtor, challenged the order on the ground that no demand notice was served on the Corporate Debtor in terms of Section 8(1) of the Code.

The Appellate Tribunal found that the a demand notice had been served but on the old address of the appellant. The registered office of the appellant was shifted from Delhi to Noida; and further, the Noida office was also sealed by a civil court of competent jurisdiction. It was noted that the demand notice was issued in a wrong address. Further, the Operational Creditor had notice of the changed address at Noida, but no demand notice was issued to that address. Finding that no notice was served on the appellant in terms of Section 8(1), the Appellate Tribunal set aside the order impugned passed by NCLT. In effect, the process initiated vide the order impugned was held illegal and set aside. The application filed by the Operational Creditor under Section 9 was dismissed with a liberty to issue fresh demand notice under Section 8(1). The appeal was allowed in the above terms. [Sharad Kesarwani v. Planetcast Media Services Ltd., 2018 SCC OnLine NCLAT 385, dated 07-08-2018]