Calcutta High Court
Case BriefsHigh Courts

   

Calcutta High Court: Md. Nizamuddin, J. took cognizance of a writ petition which was filed for the relief by way of direction upon the respondents authority concerned to bear the additional tax liability for execution of subsisting Government contracts either awarded in the pre-GST regime or in the post GST regime without updating the Schedule of Rates (SOR) incorporating the applicable GST while preparing Bill of Quantities (BOQ) for inviting the bids and also to neutralize the impact of unforeseen additional tax burden on Government contracts since the introduction of GST w.e.f. 01-07-2017 for ongoing contract awarded before the said date and to update the State SOR incorporating applicable GST in lieu of inapplicable West Bengal VAT henceforth.

After hearing the parties, the Court gave liberty to the petitioners to file appropriate representation before the Additional Chief Secretary, Finance Department, Government of West Bengal within four weeks from date. Additional Chief Secretary, Finance Department was directed to take the final decision within four months from the date of receipt of such representation after consulting with all other relevant departments. Any coercive action was barred against the petitioners until the final decision.

It was further expected of the Additional Chief Secretary to pass a reasoned and speaking order on merit and after considering all the judgments of different High Courts upon which petitioners intend to rely.

[Saptarshi v. Deputy Commr. of State Tax, WPA 3994 OF 2022, decided on 17-08-2022]


Advocates who appeared in this case :

Ankit Kanodia, Himangshu Kr. Ray, Megha Agarwal, Advocates, for the petitioner;

Tapan Bhanja, Advocates, for the Union of India in item No. 2;

Anirban Ray, T.M. Siddiqui, D. Ghosh, Advocates, for the State.


*Suchita Shukla, Editorial Assistant has reported this brief.

Bombay High Court
Case BriefsHigh Courts

Bombay High Court: Vibha Kankanwadi, J. partly allowed a writ petition setting aside the judgment and order of Additional Sessions Judge and confirming the findings of Judicial Magistrate First Class further modifying the maintenance amount to Rs 3000/- per month.

The present petition was filed by a father intending to invoke the Constitutional powers of this Court to challenge the order passed by Additional Sessions Judge whereby the revision petition by son (present respondent) was allowed setting aside the order of grant of maintenance passed by Judicial Magistrate First Class under Section 125 of Criminal Procedure Code, 1973.

Petitioner had three daughters and only one son, wife of the petitioner is still alive, but she stays separately from the petitioner but with the respondent. Petitioner contended that he had no source of income and due to his old age he is unable to do any work therefore said application for maintenance was filed. Magistrate after taking into consideration the evidence on record had come to the conclusion that the petitioner is unable to maintain himself, respondent had refused to maintain his father even after being capable of maintaining father. He had granted maintenance of Rs. 5000/- per month. This order was challenged by the respondent and reversing all the findings of the Magistrate, the Additional Sessions Judge had set aside the order passed by the Magistrate and dismissed the original application. Hence, this writ petition.

A surrejoinder was filed by the respondent stating that petitioner had agricultural land admeasuring 57 R and he has sold the same to one Sunil Chandrabhan Admane on 09-11-2015 for a consideration of Rs.3 lakh. However, according to the him, actual consideration amount was Rs.7,50,000/-, but it has been shown less in the sale deed.

The Court from the submissions gathered that at present the age of the petitioner is around 73 to 75 years and it was on record that there is no land left with the petitioner. The Court further opined that even if for the sake of arguments its accepted that there was a piece of land for the petitioner the question still remains whether that is giving him sufficient income to sustain and whether his physical ability is allowing him to cultivate the land or get it cultivated through anybody so that he can earn.

The son cannot avoid his responsibilities to maintain the father. The Court further remarked that the respondent cannot impose a condition on him in exchange of providing maintenance. The respondent had pointed out that because of the vices of the father, there were differences between the mother and the father and they were not residing together and now he was demanding the money just to fulfill his vices to which the Court commented that it cannot go into disputed facts forever and the Court can only decide whether there is a source of income for the petitioner which could give him sufficient amount to support and then there is responsibilities of son to maintain the father, and therefore, the finding which has been arrived at by the revisional Court only on the technical basis that some amount was received by the petitioner in the past because of the sell and the so called admission of the petitioner that by doing labour work he is getting wages of Rs.20/- per day. The Court believed that the said order could not have been totally discarded and that the revisional Court by applying proper criteria could have reduced that amount to make it sustainable for both the parties.

The approach taken by the revisional Court appears to be too hyper technical and when it comes to petitions under Section 125 , CrPC, the Courts cannot be so hyper technical in their approach.

The Court therefore considering all the situations partly allowed the petition setting aside the judgment and order of Additional Sessions Judge and confirming the findings of Judicial Magistrate First Class modifying the maintenance amount to Rs 3000/- per month.

[Jagannath Bhagnath Bedke v. Haribhau Jagannath Bedke, 2022 SCC OnLine Bom 1528, decided on 08-07-2022]


Advocates who appeared in this case :

Mr N. D. Batule, Advocate, for the Petitioner;

Mr D. R. Marked h/f Mr G. P. Darandale, Advocates, for the Respondent.


*Suchita Shukla, Editorial Assistant has reported this brief.

Bombay High Court
Case BriefsHigh Courts

Bombay High Court: The Division Bench of K.R. Shriram and Milind N. Jadhav, JJ. took cognizance of a petition which was filed by the wife of late Shri. Anand S. Bhatt (‘Mr. Bhatt’) who was practicing advocate and partner of Wadia Ghandy & Co., Advocates and Solicitors. He unfortunately was a victim of the terrorist attack on 26-11-2008 at Hotel Oberoi, Mumbai. After the demise of Mr Bhatt, petitioner had come across a file relating to the orders passed by respondent 2 and on legal advice decided to approach this court challenging nine orders all passed by respondent 2 by which penalty had been imposed on one TPI India Ltd (‘TPI’), its directors and ex-directors because Mr Bhatt’s name also appeared in the impugned orders.

Petition alleged that prior to 10-03-1999, Mr Bhatt was an independent non-executive director of TPI and then he had resigned as independent director of TPI and the copy of resignation letter was submitted with the Registrar of Companies intimating to the public about resignation. It is important to note that TPI has been declared a sick industrial company under the provisions of the 1985(“SICA”) by the Board of Industrial and Financial Reconstruction (“BIFR”), New Delhi. It was also not in dispute that Mr Bhatt was an independent non-executive director and had nothing to do with the day-to-day management and business of TPI.

Respondent 2 passed the impugned adjudication orders holding TPI as defaulter under Foreign Trade (Development and Regulation) Act, 1992 (“FTDRA”) alleging that TPI had defaulted in its export obligation under the advance licences issued to it by respondent 2 by not submitting the required documentation.

It was noted that TPI was receiving notices from respondent 2 and those notices were also forwarded by respondent 2 to the incorrect residential address on the premise that Mr Bhatt also continued to be a director of TPI. It appeared that no notice was addressed to Mr Bhatt but all notices were addressed to TPI and TPI was called upon to show cause.

Mr Y.R. Mishra, counsel for the respondents submitted that name of Mr Bhatt was also appearing on the Import Export Code and if he had resigned, after his resignation from the company, he ought to have applied to get his name deleted from the Import Export Code by applying to the concerned Authority for modification.

The Court noted that all allegations made in affidavit-in-reply were bald as there is no requirement shown for any such application on the part of a person whose name appears at some point of time as a director of a company. The Court was of the view that in any event Form 32, which is a public document, has been filed by TPI and the Court would expect a Special Investigating Agency like respondent 2 to make an inquiry in the office of the Registrar of Companies and find out who were the directors.

The Court reproduced the first adjudication order dated 25-07-2008 and carved out that:

(a) It was TPI that was required to fulfill the export obligation within the prescribed period and submit the documents within one month from the date of expiry of export obligation period towards discharge of its export obligation;

(b) It was TPI that did not submit any original documentary evidence in discharge of export obligation;

(c) In view thereof, it was TPI that had received a demand notice dated 13.08.2000;

(d) It was TPI that was given an opportunity of personal hearing by the licencing authority;

(e) It was TPI that failed to respond to the demand notice;

(f) The licencing authority therefore declared TPI a defaulter;

(g) Since TPI did not submit any original documents in reply to the demand notice, it was TPI that was issued a refusal order dated 26.02.2001 followed by a forfeiture order dated 19.06.2003;

(h) It was TPI that had received a show-cause-notice dated 17.06.2008 requiring to show cause as to why action to impose fiscal penalty should not be taken against TPI and its directors;

(i) It was TPI that was directed to reply to the show-cause notice, and it was TPI that was warned that failure to do would lead to a presumption that it had nothing to say in its defence and the case will be decided exparte on merits without further reference to TPI;

(j) It was TPI that was offered an opportunity of personal hearing on 23.07.2008.

The Court again clarified that TPI is the accused person primarily. There is nothing in the impugned orders as to what was the role of each director and how Mr Bhatt was a directing mind or will of TPI.

This would run contrary to the principle of vicarious liability which requires detailing the circumstances under which a director of a company can be held liable. No doubt, a corporate entity is an artificial person which acts through its officers, directors, managing director / chairman etc. It is the cardinal principle of criminal jurisprudence that where there are allegations of vicarious liability, then there has to be sufficient evidence of the active role of each director. There has to be a specific act attributed to a director or the person allegedly in control of management of the company, to the effect that such a person was responsible for the acts committed by or on behalf of the company.

The Court while disposing the petition quashed, set aside all nine orders challenged by the petitioner and held that the proceedings against Mr Bhatt were void ab initio. The Court opined that if only a notice had been sent to Mr Bhatt identifying the specific acts attributable to him, he could have represented against the imposition of any penalty. He could have placed on record various facts and circumstances to show that even if any offence was committed by TPI, he had no hand in it, thus the impugned order imposing penalty on him were set aside relying on a similar judgment in Om Vir Singh v. Union of India, 2016 SCC OnLine Guj 8404.

[Meena Anand Suryadutt Bhatt v. Union of India, 2022 SCC OnLine Bom 1505, decided on 08-07-2022]


Advocates who appeared in this case :

Mr Vikram Nankani, Senior Advocate a/w Ms Kirti Bhoite & Ms Virangana Wadhawan (Economic Law Practice), Advocates, for the Petitioner;

Mr Y.R. Mishra a/w Mr N.R. Prajapati, Advocates, for the Respondents.


*Suchita Shukla, Editorial Assistant has reported this brief.

Op EdsOP. ED.

As of December 2020, total wilful defaults amounted to INR 2,44,602 crores from 12,917 accounts.[1] This number has grown even bigger in the year 2021. Many of these accounts includes defaulters like Gitanjali Gems, ABG Shipyard, Ruchi Soya Industries Limited, Nakshatra Brands Limited and Coastal Projects Limited, among others.[2] This increasing tally of bad loans amply indicates[3] that this has a significant impact on the growth of India’s financial system and lack of credit availability in the market. However, it also indicates that the banking and finance sector is mindful of the regulatory and legal recourses available to them to timely identify such problematic accounts and have them subjected to the tough and stringent action, including actions meant not only to deter future wilful defaults but also to prevent access of further finance to such defaulters.

The Circular dated 1-7-2013 titled as Master Circular on Wilful Defaulters (RBI Circular, 2013)[4], issued by Reserve Bank of India (RBI) has assumed much significance in this regard. By way of this circular, RBI has sought to put in place a system whereby banks and financial institutions (FIs) attempt to lower the number of wilful defaults by the borrowers and penalise them for defaulting by disseminating the credit information among other banks and FIs to caution them and ensure that further bank finance is denied to the borrowers who have been declared to be a“wilful defaulter”.[5]

In 2015, RBI sought to strengthen the RBI Circular, 2013 by issuing Master Circular of 1-7-2015 (Master Circular, 2015). By way of the Master Circular, 2015, RBI widened the scope and extended the definition of the term “lender” to include all banks and financial institutions to whom any amount is due under a banking transaction. It also clarified that a banking transaction would also include transaction not on the balance sheet such as derivatives, guarantees and letters of credit.[6]This resulted in defaults with respect to such transactions being considered as wilful default and widened the scope thereof.

Master Circular, 2015: Scope

The Master Circular, 2015 defines “wilful defaulter” to mean any “unit” which defaults in meeting payment/repayment obligations to the “lender”, (i)even when it has capacity to honour it[7]; or (ii) has diverted the funds of the lender to things other than for which he has taken up such finance[8]; or (iii) has siphoned off the funds such that the funds are neither utilised for the purpose it was taken for nor it is available in the form of other assets with the unit[9]; or (iv) has disposed of or removed the movable fixed assets or immovable property pledged for securing the loan without the knowledge of the lender.[10]

By defining who can be a “wilful defaulter”, Master Circular, 2015 has delineated the incidents which would amount to a “wilful default”. It further defines the term “unit” to include individuals, juristic persons, and all other forms of business enterprises, whether incorporated or not, and such other persons who have the responsibility of managing the affairs of a business enterprise. This wide definition of “unit” has also enlarged the applicability of the Master Circular, 2015, as detailed below.

Liability of Directors: Defaults by company

From the definition of “unit”, it is evident that a wilful defaulter includes a company and the individuals who are in charge and responsible for managing the affairs of the company which is said to have wilfully defaulted. The Master Circular, 2015 mandates reporting of the names of such individuals, which typically include the promoters and whole-time directors.[11]It further provides that, except in very rare cases[12], a non-whole-time director should not be considered as a wilful defaulter. It is only when it is conclusively established that such a non-whole-time director was aware of the fact of wilful default by the borrower by virtue of any proceedings recorded in the minutes of meeting of the Board or if the wilful default had taken place with his consent or connivance, can such a director be held liable.[13]However, such exception is not applicable in case of a promoter director, even if he or she is not a whole-time director.

Under the Master Circular, 2015, in cases where a company is declared to be a wilful defaulter, there is an automatic presumption that the promoter/whole-time director who is in control of such a company, at the relevant time, is also liable to be declared a wilful defaulter.

However, such presumption is limited to only such promoters/whole-time directors who were/are associated with the company within a period of 90 days prior to the time the company account was classified as non-performing asset. It is because of the reason that the classification of an account as non-performing asset is made after the required repayments in the loan account remain overdue for a continuous period of 90 days. Thus, identifying such officials who were associated with the company at the time when the company committed acts that led to the default is necessary as these officials are responsible for such omissions or commissions of the company.[14]

Procedure for declaring “wilful defaulter”

The Master Circular, 2015 provides a detailed procedure for the banks and FIs to undertake while identifying and reporting instances of wilful defaults. The broad steps under the Master Circular, 2015 are as under:

  1. Step I: A three-member committee comprising of two senior officers of the rank of General Manager/Deputy General Manager, headed by an Executive Director or equivalent (First Committee/Identification Committee/Screening Committee) is to examine the evidence of wilful default on the part of the borrowing company and its promoter/whole-time director at the relevant time[15].
  2. Step 2: If, the First Committee concludes that an event of wilful default has occurred, it shall issue a show-cause notice to the borrower concerned and/or the promoter/whole-time director and call for their submissions/representations as to why they should not be declared a “wilful defaulter”. After considering their submissions, the First Committee may issue an order recording or rejecting the fact of wilful default and the reasons for the same.[16]

An opportunity may be given to the borrower and/or the promoter/whole-time director for a personal hearing if the First Committee feels such an opportunity is necessary. However, such opportunity does not confer a right to the borrower and the promoter/whole-time director to be represented by a lawyer before the First Committee as it is not judicial but an in-house proceeding.[17]

  1. Step 3: The order of the First Committee, in case wilful default is recorded, should be reviewed by a Second Committee headed by the Chairman/Chairman & Managing Director or the Managing Director & Chief Executive Officer/CEOs and consisting, in addition, two independent directors/non-executive directors of the bank (Review Committee).[18]The order passed by the First Committee shall become final only after it is confirmed by the said Review Committee.

Additional checks and balances to prevent arbitrary exercise of powers

While the aforesaid procedure is robust, one could argue it had scope for abuse. The Supreme Court[19]considering the severe implications of such a declaration, has added some additional checks and balances to further bolster the fairness of this process. The Supreme Court has incorporated following in this regard:

  1. the First Committee must supply a copy of its order to the borrower as soon as it is made;[20]
  2. the borrower must be given an opportunity to represent against such an order of the First Committee within a period of 15 days to the Review Committee;
  3. the Review Committee, at the time of passing its reasoned order, must take into consideration the representation made by the borrower/its director(s); and
  4. once the aforesaid procedure is properly followed, the order of the Review Committee must be communicated to the borrower and its director(s).

The aforesaid procedure laid down by the RBI in the Master Circular, 2015, and later supplemented by the Supreme Court, ensures that the principles of natural justice are not violated while making declaration of “wilful default”. It ensures that prior to any borrower being classified as a wilful defaulter, adequate opportunity is provided to such borrower to make representations against such declaration before the Review Committee, comprising of high-ranking officials of the Bank.[21]

Challenges by borrowers to declaration of “wilful defaulter”

Since, declaration of a wilful defaulter has far-reaching civil and criminal consequences,[22]it is only natural that there is substantial litigation surrounding it. In the absence of grievance redressal mechanism under the Master Circular, 2015, invocation of writ jurisdiction of a High Court is the only option available for an aggrieved person. The common grounds of challenge in such petitions are usually as below:

Challenge at the stage of issuance of show-cause notice

  1. The constitution of the First Committee issuing the show-cause notice is not in knowledge of the person declared as “wilful defaulter”, or that the First Committee is not formed as per the terms of the Master Circular, 2015.[23]
  2. The show-cause notice is not signed or issued by all the members of the First Committee.[24]
  3. The First Committee did not apply its mind to the case, and instead delegated the work to another agency instead of forming its own opinion by conducting its own independent enquiry.[25]
  4. The proposal classifying a person as wilful defaulter is not substantiated with documents constituting event of “wilful default”.[26]

Challenge to the decision of the First Committee/Review Committee

  1. The First Committee/Review Committee premeditated and concluded that the events of default have been committed by the defaulter.[27]
  2. The precise facts to conclude that an event of wilful default has occurred is not provided and/or that the relevant documents have not been supplied to the borrower, therefore, there is a violation of principles of natural justice[28].
  3. The opportunity to represent before the First Committee/Review Committee is not provided or the representations/submissions of the alleged defaulter is not considered by the First Committee/Review Committee while passing an order of wilful default Therefore, such an order is not a reasoned order[29].
  4. Review Committee did not apply its own mind while assessing the correctness of the opinion of the Identification Committee.[30]
  5. The order of the First Committee declaring the borrower a “wilful defaulter” is not supplied to the borrower.[31]
  6. The director cannot be made liable without classifying the company as wilful defaulter.[32]
  7. The Director was not a person associated with the company in default during the relevant period.[33]
  8. That the moratorium under Insolvency and Bankruptcy Code, 2016[34] is imposed on the debts and defaults of the company[35]; or that the company stands absolved of the debt[36].

With increasing challenges to the declaration of “wilful default”, the judicial position on these aspects is further developing day by day. For instance, in most of these cases involving challenge to the show-cause notice, courts have adopted a uniform approach to reject such challenge on the preliminary ground of it being premature[37] as no actions has yet been taken making the borrower aggrieved.

Earlier the position of law, however, was not uniform across various High Courts in this regard. For instance, the Calcutta High Court in Atlantic Projects Ltd. v. Allahabad Bank[38]had held that Master Circular, 2015 does not envisage that the First Committee can even delegate the ministerial task of issuance of show-cause notice to a subordinate, on the ground that the Master Circular, 2015 requires it to apply its own mind to even the task of issuance of show-cause notice. On the other hand, the Delhi High Court in Sanjay Singal v. SBI[39]and the Division Bench of the Calcutta High Court in Union Bank of India v. Sudhir Kumar Patodia[40]had set aside similar challenge and held that it is the First Committee which examined the conduct of the borrower and the utilisation of credit facilities before proposing classification of the account as wilful default, and it was only the mere act of communicating such proposal vide issuance of show-cause notice which has been delegated.

It can therefore be said that the law on this subject is still in a nascent stage and/or remains an enigma for both the lenders and the borrowers as all the possible issues and disputes arising out of the Master Circular, 2015 are yet to be conclusively addressed or settled. However, there is no doubt that, in the current economic scenario, the Master Circular, 2015 remains an important ammunition in the lender’s arsenal, provided the procedure envisaged thereunder is followed in letter and spirits.


*Partner, Cyril Amarchand Mangaldas and “Top Individual Lawyer”, Forbes Legal Powerlist 2021.

**Principal Associate Designate, Cyril Amarchand Mangaldas.

***Senior Associate, Cyril Amarchand Mangaldas.

[1] George Mathew and Khushboo Narayan, Amid Covid Effect, Bank Steps, Wilful Defaults Rise Rs 38,976 crores, Indian Express, 11-5-2021, available at https://indianexpress.com/article/business/amid-covid-effect-bank-steps-wilful-defaults-rise-rs-38976-crore-7309969/.

[2] Nachiket Kelkar, 2,426 Wilful Defaulters Owe Rs 1.47 Lakh Crores to State-owned Banks, Reveals Bank Union, The Week, 18-7-2020, available at <https://www.theweek.in/news/biz-tech/2020/07/18/2426-wilful-defaulters-owe-rs-147-lakh-crore-to-state-owned-banks-reveals-bank-union.html>.

[3]Rise by over INR 38,976 Crores from the Default as of December 2019. See George Mathew and Khushboo Narayan, Amid Covid Effect, Bank Steps, Wilful Defaults Rise Rs 38,976 Crores, Indian Express, 11-5-2021, available at https://indianexpress.com/article/business/amid-covid-effect-bank-steps-wilful-defaults-rise-rs-38976-crore-7309969/.

[4]Master Circular on Wilful Defaulters, RBI/2013-14/63 dated 1-7-2013.

[5]See also, Sudarshan Overseas Ltd. v. RBI, 2009 SCC OnLine Del 1656, para 13:

  1. A borrower who is a wilful defaulter can otherwise go to different banks or financial institution and obtain loans. Past conduct of wilful default by way of diversion and siphoning off funds, etc. is always a relevant consideration for deciding whether or not additional funds/facilities should be granted. Past conduct as a wilful defaulter should be in the knowledge of bank/financial institutions advancing the money. The Master Circular obviously has a laudatory purpose behind it and cannot be rejected.

[6]Guidelines on Wilful Defaulters— Clarification regarding Guarantor, Lender and Unit, accessed at <http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=9224&Mode=0>.

[7]Master Circular, 2015, Para 2.1.3(a).

[8] Master Circular, 2015, Para 2.1.3(b).

[9]Master Circular, 2015, Para 2.1.3(c).

[10]Master Circular, 2015, Para 2.1.3(d).

[11]Master Circular, 2015, Regn. 3.

[12]Kailash Shahra v. IDBI Bank Ltd., 2019 SCC OnLine Bom 3279, para 35.

[13]Master Circular, 2015, Regn. 3(d).

[14]Ramesh Kumar Sareen v. Union of India, 2016 SCC OnLine Del 3374.

[15]Master Circular, 2015, Regn. 3(a).

[16]Master Circular, 2015, Regn. 3(b).

[17]SBI v. Jah Developers (P) Ltd., (2019)6 SCC 787 (Jah Developers).

[18] It may be noted that the First Committee and the Review Committee are constituted with different officials to ensure a process of impartiality and objectivity to the final decision of the Bank.

[19]SBI v. Jah Developers, (2019) 6 SCC 787.

[20]In SBI v. Jah Developers, (2019) 6 SCC 787, 803, Supreme Court also analysed the RBI Circular 2013 and observed that:

  1. 24. … given the fact that Para3 of the Master Circular dated 1-7-2013 permitted the borrower to make a representation within 15 days of the preliminary decision of the First Committee, we are of the view that first and foremost, the Committee comprising of the Executive Director and two other senior officials, being the First Committee, after following Para3(b) of the Revised Circular dated 1-7-2015, must give its order to the borrower as soon as it is made….Given the fact that the earlier Master Circular dated 1-7-2013 itself considered such steps to be reasonable, we incorporate all these steps into the Revised Circular dated 1-7-2015.

[21]See also, Sudarshan Overseas Ltd. v. RBI, 2009 SCC OnLine Del 1656 : (2009) 160 DLT 77. In this case, challenge was made to Master Circular dated 2-7-2007 on wilful defaulters. The  Delhi High Court held that the circular lays guidelines for banks and FIs, which they have to necessarily adhere to, and enough safeguards are provided for the protection of the borrowers, and in case of violations, complaints can be made as the action to declare borrower as wilful defaulter is an internal action of the bank and such declaration can only be made after hearing the representation and giving right to hearing. Thus, the circular was held to have enough safeguards as to differentiate between wilful defaulter and genuine borrowers.

[22] The consequences of being declared a wilful defaulter includes:

  1. no additional facilities to be granted by any bank/financial institution [Master Circular, 2015, Para 2.5(a)];
  2. entrepreneurs/promoters would be barred from institutional finance for a period of 5 years [Master Circular, 2015, Para 2.5(a)];
  3. any legal proceedings can be initiated, including criminal complaints [Master Circular, 2015, Para 2.5(a)];
  4. banks and financial institutions to adopt proactive approach in changing the management of the wilful defaulter [Master Circular, 2015, Para 2.5(c)];
  5. promoter/Director of wilful defaulter shall not be inducted by another borrowing company [Master Circular, 2015, Para 2.5(d)]; and
  6. as per 29-A of the Insolvency and Bankruptcy Code, 2016, a wilful defaulter cannot be a resolution applicant.

[23]Sandip Kumar Bajaj v. SBI,2020 SCC OnLine Cal 1659.

[24]Union Bank of India v. Sudhir Kumar Patodia, 2020 SCC OnLine Cal 3259.

[25]Union Bank of India v. Sudhir Kumar Patodia, 2020 SCC OnLine Cal 3259.

[26]Kingfisher Airlines Ltd. v. Union of India, 2014 SCC OnLine Del 7731.

[27]Siemens Ltd. v. State of Maharashtra, (2006) 12 SCC 33; see also, Union Bank of India v. Sudhir Kumar Patodia, 2020 SCC OnLine Cal 3259.

[28]Ionic Metalliks v. Union of India, 2014 SCC OnLine Guj 10066; Narendra Seoomal Sabnani v. SBI, 2021 SCC OnLine Bom 4604..

[29]Aap Infrastructures Ltd. v. Bank of Baroda, 2019 SCC OnLine Del 9670; see also, Frost International Ltd. v. Punjab National Bank, 2021 SCC OnLine Del 3683.

[30]Senthil Arumugasamy v. SBI, 2021 SCC OnLine Mad 2899.

[31]Aap Infrastructures Ltd.v. Bank of Baroda, 2019 SCC OnLine Del 9670.

[32]Ishwari Prasad Tantia v. IDBI Bank Ltd., 2021 SCC OnLine Cal 3683.

[33]Ramesh Kumar Sareen v. Union of India, 2016 SCC Online Del 3374.

[34]Insolvency and Bankruptcy Code, 2016.

[35]Gouri Prasad Goenka v. SBI, 2021 SCC OnLine Cal 1942; see also, Union Bank of India v. Sudhir Kumar Patodia, 2020 SCC OnLine Cal 3259.

[36]Ishwari Prasad Tantia v. IDBI Bank Ltd., 2021 SCC OnLine Cal 3683.

[37]Ganpatlal Pawan Kumar Traders (P)Ltd. v. RBI, 2019 SCC OnLine Cal 6941.

[38]2019 SCC OnLine Cal 611.

[39] 2020 SCC OnLine Del 2127.

[40]2020 SCC OnLine Cal 3259.

Case BriefsDistrict Court

Dwarka Courts, New Delhi: Deeksha Sethi, MM (NI Act)—06, reiterated that, even a blank cheque leaf, voluntarily signed and handed over by the accused, which is towards some payment, would attract presumption under Section 139 of the Negotiable Instruments Act, 1881.

In the present matter, Raj Singh was referred to as ‘complainant’ and the accused were relatives as the marriage of the son of the complainant and daughter of the brother of the accused was solemnized.

The complainant’s case was that in the second week of April 2015 accused along with his brother approached him and requested a sum of Rs 12 lakhs and 8 lakhs respectively as they were in dire need of money. It was assured to the complainant that they would return the money within 12 months along with interest @ 2% per month.

It was stated that, the accused and his brother paid the interest only on two occasions and thereafter neither paid the interest nor principal amount despite repeated requests.

Thereafter, in the discharge of their liability accused’s brother gave a cheque amounting to Rs 8 lakhs as part payment and accused Yashpal Singh also gave a cheque amounting to Rs 12 lakhs.

Both the above cheques were dishonoured with the remarks ‘Insufficient Funds’.

The complainant had informed about the dishonouring of the cheque by the accused and his brother, however, the accused and his brother refused to return the amount and threatened the complainant with dire consequences.

Later, since the accused failed to make payment despite the notice, therefore liability to be tried and punished for an offence under Section 138 NI Act.

Analysis, Law and Decision

Court noted that the accused had admitted the fact that the cheque in question had his signatures and in such scenario, a presumption was raised under Section 139 read with Sections 118/20 of the NI Act, that cheque was issued in discharge of debt or liability.

With regard to the contention of the accused regarding certain particulars of the cheque were not filled by the accused and hence it was difficult to believe the complainant’s version, Court expressed that, even it was admitted for the sake of argument that blank cheque was given by the accused to the complainant, it is a well-settled principle of law that,

“…even a blank cheque leaf, voluntarily signed and handed over by the accused, which is towards some payment, would attract presumption under Section 139 of the Negotiable Instruments Act, 1881, in the absence of any cogent evidence to show that the cheque was not issued in discharge of a debt.”

Hence, the contention of the accused could not be accepted.

Misuse of Cheque

The Bench noted that the accused neither placed on record any complaint made to the police or bank in the said regard nor led any other evidence in support of the misuse of the cheque.

Further, the Bench added that, it is well settled that bare statements and story-telling would not help the accused to rebut the presumption raised under Sections 118 and 139 of the NI Act.

Whether the accused had been able to shake the version given by the complainant in his evidence affidavit and had been able to point out discrepancies or contradictions which may throw doubt on his version?

The only suggestion that had been given was that a blank signed cheque was issued by the accused to the complainant as it was agreed in Panchayat that the accused and his brother would give the cheque in question and the complainant’s son would take back the accused’s niece. Thus, no discrepancy had emerged out of the cross-examination which may demolish the complainant’s version even on the touchstone of preponderance of probabilities.

The Court concluded that the accused was not able to prove any probable defence and had failed to rebut the presumption raised under Sections 118/139 of the NI Act.

Therefore, Yashpal Singh was held guilty and convicted for the commission of an offence punishable under Section 138 of the NI Act in respect of the cheque in question. [Raj Singh v. Yashpal Singh Parmar, 2022 SCC OnLine Dis Crt (Del) 16, decided on 25-4-2022]

Case BriefsDistrict Court

Dwarka Courts, Delhi: Rahul Jain, Metropolitan Magistrate, while addressing a matter regarding dishonour of cheque, held that mere assertion of non-receipt of legal notice cannot help the accused in escaping liability under Section 138 Negotiable Instruments Act, 1881.

It was alleged in complaint that accused had approached the complainant to purchase a car. It was sold vide an agreement for Rs 7 lakhs only to be paid in 35 EMIs of Rs 20,000.

After default in the instalments, the accused issued a cheque which was returned dishonoured with remark “funds insufficient”. Thereafter, the complainant approached the accused repeatedly about the dishonour of the cheque and then the accused agreed to repay the consideration at one time and issue one cheque which was dishonoured.

Since no response was made within the statutory period regarding the demand notice, the present complaint was filed.

Analysis, Law and Decision


Legal Notice

The Court stated that the assertion of non-receipt of legal notice cannot help the accused in escaping liability under Section 138 NI Act, especially keeping in mind that firstly the accused has admitted his address mentioned on legal demand notice to be correct and secondly that the accused entered appearance in the court pursuant to service upon the same address as was mentioned in the legal demand notice.

It was settled in the decision of the Supreme Court in C.C. Alavi Haji v. Palapetty Muhammed, (2007) 6 SCC 555,  that an accused who claimed that he did not receive legal notice, can within 15 days on receipt of summons from the Court, make payment of the cheque amount, and an accused who does not make such payment cannot contend that there was no proper service of notice as required under Section 138, by ignoring statutory presumption to the contrary under Section 27 of the General Clauses Act and Section 114 of the Evidence Act.

Legal Enforceable Debt

Bench noted that the initial defence of the accused had been that he had not purchased any car from the complainant and denied his signatures on the vehicle agreement. Further, he stated that car was purchased by his brother from the complainant, and he had just stood as a guarantor in the transaction and issued the cheque as security. The said defence was not even a defence but rather an admission to the liability to pay the cheques.

Liability of Guarantor under Section 138 NI Act

Section 138 NI Act uses the words “where any cheque” and therefore, the cheque could be drawn for whatever reason and the drawer would be liable if it is drawn on an account maintained by him with a banker in favour of another person for the discharge of any debt or other liability.

“The cheque could be issued for the discharge of the debt or liability of the drawer or of any other person including a guarantor.”

Section 128 of the Indian Contract Act provides that the liability of the surety is coextensive with that of the principal debtor, unless it is otherwise provided in the contract.

Hence, as per the Indian Contract Act, the liability of the guarantor is coextensive with that of the borrower which means that lender can enforce his right against either the principal borrower or the guarantor of the principal borrower.

Therefore,

On a joint reading of section 138 of Negotiable Instruments Act and Section 128 of Indian Contract act, it is now crystal clear that the liability of the guarantor of a loan fall within the provisions of Section 138 NI Act.

Court added that, with the presumption under Section 139 NI Act raised in the favour of the complainant as the accused admitted his signatures on the cheque, the burden of proof was on the accused to raise a probable defence.

Such burden is only to the extent of the preponderance of probabilities but mere verbal denial won’t discharge even this burden. The onus was on the accused to prove that the signatures on the agreement were not his.

In the absence of evidence for the above, Court used its power under Section 73 of the Evidence Act to compare his signatures on the vehicle agreement with the admitted signatures on the cheque.

In view of the above discussion, a presumption existed in the favour of the complainant, and it was the accused who had to discharge the onus, but he miserably failed to do so.

Therefore, the complainant duly proved his case against the accused for offence punishable under Section 138 NI Act, 1881 beyond the shadow of any reasonable doubt. [Anju Devi v. Mukesh, 2022 SCC OnLine Dis Crt (Del) 19, decided on 9-5-2022]

Case BriefsHigh Courts

Delhi High Court: Asha Menon, J., held that if no offence is attributed to the company, its Directors and other persons responsible for the conduct of its business cannot be saddled with any liability.

The petitioner had filed a complaint under Section 138 of the Negotiable Instruments Act, 1881 against the respondent. It was stated that, the commercial space owned by the petitioner had been let out upon terms and conditions in the Rent Agreement.

The above-said rent agreement was executed between the petitioner and the respondent’s company. Further, in March-April, 2013 the respondent was alleged to have issued five cheques duly signed by the Managing Director to discharge the company’s liability to pay the rent.

The above-said cheques were bounced; hence the complaint was filed.

Analysis and Decision

High Court observed that the Company upon which the primary liability rests and a person who is sought to be made vicariously liable for an offence of which the principal accused is a company, would need to have a role to play in relation to the incriminating act.

Section 141 of the N.I. Act operates only when the offence under Section 138 of the N.I. Act is committed by a company.

Further, Court stated that the Company being the primary accused must be found to have committed an offence. Thereafter, through the legal fiction created by Section 141 of the N.I. Act, the Directors and other persons responsible for the conduct of its business also become vicarious liable.

In the present matter, all the averments were against the respondent, who was described as Managing Director.

There was no pleading which suggested that the Company had committed any offence.

When no offence is attributable to the Company, it is not possible to attach liability on the Managing Director by the deeming provisions of Section 141 of the N.I. Act.

Bench added that, amendments of simple technical infirmities alone can be allowed but not the filing of a fresh complaint with improved pleadings in the garb of the amendment.

Hence, in view of the above discussion, Court denied grant permission to amend the complaint.

Therefore, the petition was dismissed. [Hari Shamsher Kaushik v. Jasbir Singh, 2022 SCC OnLine Del 1379, decided on 9-5-2022]


Advocates before the Court:

For the Petitioner: Mahesh K. Mehta, Advocate

For the Respondent: None

OP. ED.Practical Lawyer Archives

To pursue corporate relationships and transactions, it is very common for parties to enter into a confidentiality agreement on a non-disclosure agreement (NDA). The primary intent of executing such an NDA is to facilitate exchange of confidential information among parties and to that the confidential information disclosed thereunder will be safeguarded during the term of and (sometimes even) post-termination of the NDA.

Typically, there are certain provisions in an NDA which enable the discloser in protecting confidential information from unauthorised use or disclosure by the recipient, the latter’s representatives and any third parties and to limit liability of the contracting parties (as applicable) with respect to confidential information.

We are discussing some of these provisions in this article as under:

Return or destruction of confidential information

Discloser typically shares the confidential information to recipient for a designated business or professional purpose. Therefore, from discloser’s perspective, it is crucial to ensure confidential information is safeguarded and secured after accomplishment of intended purpose of disclosure of confidential information.

Prospect to return or destruction of confidential information is instrumental in ensuring recipient will not make any unauthorised use of confidential information post completion of intended purpose of disclosure of confidential information or termination of the NDA.

Triggering point: There are different triggering points wherein discloser can make recipient return or destroy confidential information. The following are such triggering points:

(a) Upon termination or expiry of the agreement.

(b) Upon termination or expiry of discussions between discloser and recipient.

(c) Upon request (oral or written) of the discloser or its representatives.

From discloser’s perspective, triggering of return or destruction of confidential information obligation based on termination or expiry of the agreement or discussions will be beneficial, so that discloser has no need to specifically request recipient to return or destroy confidential information as the recipient is implied to do so following the occurrence of stipulated event.

From recipient’s perspective, return or destruction of confidential information obligation qualified by a written request of discloser is useful to recipient as there is no onus on recipient to return or destroy confidential information unless and until the same is requested by the discloser in writing.

Return or destruction of notes

Notes means any notes, summaries, analysis, materials, etc. prepared by recipient or its representatives based on the confidential information. Inclusion of return or destruction of notes depends on parties. Generally discloser prefers to include the same and sometimes recipient prefers to exclude the same.

Certification or confirmation

Proof of such return or destruction of confidential information can be established with an obligation on recipient either to certify or confirm such return or destruction of confidential information. This will make discloser feel comfortable to learn its confidential information is either returned or destroyed.

From liability perspective, certification of return or destruction of confidential information is a bit more obligatory in nature. Confirmation of return or destruction of confidential information is less obligatory. For recipient’s benefit, certification or confirmation of return or destruction of confidential information can be tied to a written request of the discloser. This will ensure that recipient will be required only to confirm or certify of return or destruction of confidential information only if requested in writing by the discloser.

Retained confidential information

Like every rule comes with an exception, in certain cases, recipient will be exempted from this obligation to return or destroy confidential information. This is to enable recipient to retain confidential information in permitted cases for legal, compliance and regulatory purposes. Typically, a recipient will be permitted to retain copies of confidential information as required by law, compliance or record retention policies or as part of automated archival or backup copies.

Restricted access

To ensure recipient will not make use of retained copies of confidential information beyond permitted purposes, discloser may prefer to include a provision of restricted access to retained copies and use such copies for permitted copies only. This is to ensure only certain permitted personnel (i.e. legal, compliance or IT personnel) will have right to access such retained confidential information and such permitted personnel will further use such retained copies of confidential information only for permitted purposes only.

Survival

Survival of confidentiality obligations with respect to retained copies of confidential information is another parameter that will influence time period for which recipient will have to protect such retained copies of confidential information.

Typically, obligations (confidentiality, non-use or other, as applicable) with respect to retained copies of confidential information may survive:

(a) In perpetuity.

(b) For so long as the confidential information is retained by recipient.

(c) For the term of the NDA.

Term and protection period

Term of NDA is time duration for which the NDA will be in effect.

Protection period will be term for which the confidentiality obligations will be in effect without giving consideration to the fact that NDA is in effect or expired.

Triggering point: For an NDA to become effective or application of confidentiality obligations may begin from the effective date of agreement or date of disclosure or receipt of confidential information.

Tenure: Term or protection period can be a fixed term or perpetual. For protection period, sometimes confidentiality obligations will survive for so long as confidential information is retained by recipient.

Representations and warranties

Common representations and warranties in NDAs are discloser’s representation or warranty as to discloser’s right to disclose confidential information—this is to comfort the recipient that discloser is competent to disclose the confidential information to recipient.

One common caveat in representation and warranty segment is that information is provided on “as is” basis. This reflects that discloser passed on confidential information to recipient as it is without substantiating veracity of confidential information as it will be highly impossible for discloser to guarantee every piece of confidential information is true and accurate as the confidential information may be complied from different channels over which the discloser may have no control.

Among other representations and warranties, NDAs may contain the following:

(a) Parties’ authority to enter into the confidentiality agreement.

(b) Parties will comply with applicable laws and rules.

(c) Execution of the NDA will not violate any third party agreements or intellectual properties.

Generally, will contain disclaimer about accuracy or completeness of confidential information. Core purpose of such disclaimer is to say discloser does not warranty or guarantee about accuracy or truthfulness of confidential information as said above, confidential information will be compiled or received from multiple sources.

Disclaimer of liability: From discloser’s perspective, liability disclaimer is crucial as discloser will disclaim liability for any claims based on use of confidential information by recipient. However, this can be caveated for recipient’s benefit, with addition of “except for matters specifically agreed in the agreement”. This caveat will ensure that discloser will be liable for any claims based on matters specified in the confidentiality agreement and recipient will have leverage to make successful claims based on matters specifically agreed therein.

Injunctive relief

It is crucial for discloser to have right to seek injunctive relief or specific performance of the confidentiality agreement to prevent unauthorised use or disclosure of confidential information by recipient or its representatives or to limit damage related to any commission of unauthorised use or disclosure of confidential information.

From discloser’s perspective, qualifiers (without necessity of posting bond or without necessity of proof of damages) will make life of discloser easy to seek injunctive or other relief without the necessity of proof to backup damages claimed and without necessity of giving security with respect to such claim.

This is a special right given to discloser to seek remedies for any unauthorised use or disclosure of confidential information. At the same time, this right can also be mutual to discloser and recipient as a non-breaching party to claim relief for commission of breach of confidentiality agreement by breaching party.

Compensation for breach

Typically, in NDAs, either party does not prefer to have an obligation to indemnify the other party for any breach of the confidentiality agreement. Instead, a party may agree to pay compensation to a prevailing party in a litigation as awarded by court of competent jurisdiction in a final, non-appealable order.  Such compensation may include reimbursement of legal and miscellaneous expenses also. One way to limit liability for paying compensation is qualifying such expenses and fees by caveat of reasonable and documented. As a reason, non-prevailing party will only have to pay such expenses provided they are reasonable in nature and substantiated by proof of documentation.


Bhumesh Verma is Managing Partner at Corp Comm Legal and can be contacted at bhumesh.verma@corpcommlegal.in.

Legal RoundUpWeekly Rewind

 


Top Story


 Thane Court

Man allegedly cheats a woman by suppressing material fact of him being homosexual: Will Thane Court grant him bail? Read

Noting the fact that a man suppressed the material fact of his private life before marriage i.e., about him being a homosexual, Rajesh S. Gupta, J., found that, the whole life of a young girl had been spoiled due to the material suppression, if the same would have been shared prior to the marriage then the consequence would be different.

Bench expressed that,

No doubt, every individual has its dignity to live in the society. No other person can interfere into lifestyle but that does not mean that a person gets liberty to spoil the life of either of spouse.

https://www.scconline.com/blog/post/2022/04/12/man-cheats-woman-not-disclosing-homosexuality/


Supreme Court | Updates


Husband suspects paternity of child; Supreme Court allows DNA test while granting conditional compensation of 30 lakhs to wife if suspicion proves to be wrong

In a very interesting case where the husband had disputed paternity of child on suspicion, though the Supreme Court has allowed the DNA test, it has also granted a conditional compensation of thirty lakhs to the wife if the suspicion proves to be wrong and husband turns out to be the father of the child.

The couple got married on 05-02-2014 and the marriage was consummated on 09-02-2014. The child was born after 261 days, i.e., about 17 days earlier which was almost after 9 months, therefore, the wife had contended that there was no reason to presume that the petitioner was pregnant when she married the respondent.

Before the Supreme Court, the Bombay High Court had also directed the DNA test.

https://www.scconline.com/blog/post/2022/04/12/paternity-dna-test-compnesation-husband-wife-family-supreme-court/

2006 Meerut Fire Tragedy| Organizers held guilty! 60:40 liability to compensate victims fixed on Organizers & State

In the 2006 Meerut fire case, the Supreme Court has held the Organizers responsible for the incident and not the Contractor as the Contractor was only responsible for executing work as assigned to him by the Organizers.

The victims can finally see some ray of hope after 16 years of the unfortunate incident that claimed 65 lives and left 161 or more with burn injuries as the Supreme Court has now directed the Chief Justice of the Allahabad High Court to entrust the work of determination of compensation to a Judicial Officer in the rank of District Judge/Additional District Judge at Meerut within two weeks of the present order to work exclusively on the question of determination of the compensation on day-to-day basis.

https://www.scconline.com/blog/post/2022/04/13/meerut-fire-tragedy-compensation-organizers-supreme-court-judgments-legal-research-updates-news/


High Court | Updates


Bombay High Court

Whether absence of President of State Commission or District Forum for reasons beyond control is sufficient for striking down S. 29A as unconstitutional? Bom HC decides

Stating that, the Courts cannot examine the constitutional validity if a situation created by impugned legislation is irremediable, the Division Bench of Bombay HC, addressed a matter wherein the constitutional validity of Section 29A of the Consumer Protection Act, 1986 was challenged.

High Court observed that, the language of Section 29A of the Consumer protection Act is intended to provide for a situation where a President of State Commission or District Forum is non-functional, either having not been appointed in time or is on leave due to reasons beyond his control.

The scheme of appointment and adjudication of consumer disputes is laid down under the Act to make the District Forum or State Commission continuously functional, allowing the Members in the absence of the President to function in a situation beyond the control of the Members of the Forum.

https://www.scconline.com/blog/post/2022/04/12/constitutional-validity-of-section-29a-of-consumer-protection-act-district-forum-state-commision-president/

Lawyer-client relationship is a fiduciary one; any act which is detrimental to legal rights of clients’ needs to be punished 

Stating that it is the duty of every Advocate to uphold professional integrity so that citizens can legally secure justicethe Division Bench of V.M. Deshpande and Amit B. Borkar, JJ., expressed that, professional misconduct refers to its disgraceful conduct not befitting the profession concerning the legal profession, which is not a business or trade and therefore, it must remain decontaminated

In this case, the Court was perturbed by the act of the Advocate to keep valuable security owned by the Client with him.”

Bench also observed that, The Advocates owe a social obligation to the Society while discharging professional services to the litigant. The Advocate should not commit any act by which a litigant could be deprived of his statutory and constitutional rights on account of the sublime position conferred upon him under the judicial system in the country.

https://www.scconline.com/blog/post/2022/04/12/lawyer-client-relationship-is-a-fiduciary-one/

Every partner is liable, jointly with all other partners and also severally for all acts of firm done while he is a partner: Is it true? Bom HC answers

Expressing that, a firm is not a legal entity, the Bombay High court, held that a partnership firm is only a collective or compendious name for all the partners. A partnership firm does not have any existence apart from its partners. Therefore, a decree in favour of or against the firm in the name of the firm has the same effect like a decree in favour of or against the partners.

Hence, when a firm incurs a liability, it can be assumed that all the partners have incurred that liability and so the partners remain liable jointly and severally for all the acts of the firm.

https://www.scconliane.com/blog/post/2022/04/15/every-partner-is-liable-jointly-with-all-other-partners-and-also-severally-for-all-acts-of-firm-done-while-he-is-a-partner/


 Punjab & Haryana High Court

Wife makes unfounded, indecent and defamatory allegations against husband to his senior officers, destroying his career & reputation: Mental Cruelty or not? P&H HC elaborates

Expressing that, Matrimonial cases are matters of delicate human and emotional relationshipthe Division Bench of P&H HC., expressed that, the Court no doubt should seriously make an endeavour to reconcile the parties, yet, if it is found that the breakdown is irreparable, then divorce should not be withheld.

The Court remarked that, The consequences of preservation in law of the unworkable marriage which has long ceased to be effective are bound to be a source of greater misery for the parties

https://www.scconline.com/blog/post/2022/04/11/wife-destroying-career-and-reputation-of-the-husband-irretrievable-breakdown-of-marriage-mental-cruelty/


Rajasthan High Court

Raj HC reiterated “Right to Procreation survives during incarceration” and “is traceable and squarely falls within the ambit of Article 21 of our Constitution; Parole granted

Rajasthan High Court granted parole to a convict whose wife sought 15 days of emergent parole for want of progeny.

High Court observed that, having progeny for the purpose of preservation of lineage has been recognized through religious philosophies, the Indian culture and various judicial pronouncements. the right of progeny can be performed by conjugal association; the same has an effect of normalizing the convict and also helps to alter the behavior of the convict prisoner.

https://www.scconline.com/blog/post/2022/04/11/raj-hc-reiterated-right-to-procreation-survives-during-incarceration/


Legislation Updates 


Income-tax (8th Amendment) Rules, 2022 

Ministry of Finance notified Income Tax (8th Amendment) Rule, 2022 in order to amend the guidelines of Infrastructure Debt Fund in the parent rules of Income Tax Rules, 1961. The 8th amendment will be in force with immediate effect. The amendment set up the Infrastructure Debt Fund as a Non-Banking Financial Company (NBFC) according to the conditions set by the Reserve Bank of India in the Infrastructure-Debt Fund–Non-Banking Financial Companies (Reserve Bank) Directions, 2011.

https://www.scconline.com/blog/post/2022/04/09/infrastructure-debt-fund-guidelines-modified-vide-income-tax-8th-amendment-rules-2022/

SEBI (Listing Obligations and Disclosure Requirements) (3rd Amendment) Regulations, 2022 

On 11th April, 2022, Securities and Exchange Board of India issues Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (3rd Amendment) Regulations, 2022. This regulation comes into effect with immediate effect and aims to replace “asset cover” with “security cover” for the listed debt with Securities and Exchange Board of India (SEBI). Asset cover certificate is used to monitor the adequacy of assets charged against the debt obligations of the person issuing it. It is submitted to the Debenture Trustee.

https://www.scconline.com/blog/post/2022/04/12/asset-cover-sebi-security-cover-legal-research/

Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2022 

On April 12, 2022, the Department of Economic Affairs (DEA) has issued the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2022 to further amend the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. The amendment modifies the period of “Convertible note”from 5 years to 10 years.

https://www.scconline.com/blog/post/2022/04/15/foreign-exchange-management-non-debt-instruments-amendment-rules-2022/

National Insurance Company Limited (Merger) Amendment Scheme, 2022 

The Central Government notifies National Insurance Company Limited (Merger) Amendment Scheme, 2022 to amend the National Insurance Company Limited (Merger) Scheme, 1973.

In the National Insurance Company Limited (Merger) Scheme, 1973, the authorised share capital of three public sector general insurance companies has been enhanced from ‘seven thousand five hundred crore divided into seven hundred fifty crore’ to ‘fifteen thousand crore divided into fifteen hundred crore’.

https://www.scconline.com/blog/post/2022/04/15/authorised-share-capital-of-three-public-sector-general-insurance-companies-enhanced-vide-national-insurance-company-limited-merger-amendment-scheme-2022/

National Consumer Disputes Redressal Commission
Case BriefsTribunals/Commissions/Regulatory Bodies

National Consumer Disputes Redressal Commission (NCDRC): After forceps delivery, a woman lost her control over passing urine and stool due to the negligence of a doctor, the Coram of R.K. Agrawal (President) and Dr S.M. Kantikar (Member) upheld the decision of State Commission with respect to compensation of Rs 8 lakhs.

The complainant (referred to as the patient) during pregnancy was under Antenatal care of Dr Vartika Mishra (OP). It was alleged that the OP conducted her forceps delivery, which resulted in 4th degree tear in the perineum (area between the vaginal canal and anus), further, the OP stitched the skin only, without muscle repairs, hence the patient lost her control over passing the urine and stool.

Thereafter, the complainant consulted another doctor who diagnosed ‘poor tone’ and ‘very poor anal squeeze’. Later the patient consulted various doctors but did not get full recovery in fact the patient was deprived of marital happiness for 2 years and lost her chance for normal delivery in future.

On being aggrieved, the Consumer complaint was filed before the State Commission and claimed Rs 35 lakhs as compensation.

State Commission partly allowed the complaint and directed the OP to pay a sum of Rs 8,00,000.

Being aggrieved with the above, an instant first appeal was filed.

Analysis and Decision

Commission held that there was negligence during outlet forceps delivery.

In addition to the above, there was a failure of duty of care during post-delivery period and medical record of the OP including Dr Abha Singh failed to convince the Commission about proper post-partum care.

“…the patient was complaining repeatedly about pain in the suture site but both the doctors have simply prescribed medicines, but ignored or not carefully examined the suture site for induration or infection, surprisingly advised to use ‘coconut oil with kapoor’ for about 6 months.”

Coram noted that the patient was a young woman and in primi gravida (first pregnancy). She, after delivery, for her sufferings ran from pillar to post to various hospitals in Raipur and Mumbai.

While concluding the matter, the Commission held that, the patient developed 4th-degree perineal tear after forceps delivery, which squarely attributed to the failure of duty of care, thus, medical negligence. Also, she did not get post-partum care as per accepted reasonable standards.

Therefore, State Commission’s order was affirmed. [ Dr Vartika Mishra v. Rachana Agrawal, FA No. 948 of 2015, decided on 25-2-2022]


Advocates before the Court:

Appeared at the time of arguments through Video Conferencing

For the Appellant : Mr. Vaibhav Agnihotri, Advocate Mr. Dhruv Chawla, Advocate

For the Respondents : Mr. Mohammad Sajid, Advocate

Bombay High Court
Case BriefsHigh Courts

Bombay High Court: Expressing that, a firm is not a legal entity, N.J. Jamadar, J., held that a partnership firm is only a collective or compendious name for all the partners.

The present matter was filed to recover the amount which the plaintiffs claimed to have invested in defendant 1 – firm, along with the interest at the rate of 24% p.a. on the basis of the credit notes.

The plaintiffs asserted that defendant 1 was a registered partnership firm and defendants 2 to 4 were its partner and in charge of day-to-day affairs of defendant 1 -firm and otherwise responsible for the conduct of the affairs and business of defendant 1—firm.

Plaintiffs’ case was that upon the representation of defendants 2 to 4 that the plaintiffs would get a handsome return on the investment made with the defendants, the plaintiffs had invested a sum of Rs 1 crore, over a period of time. The said amount was to be repaid on demand along with interest.

Further, the defendant committed default in repayment, hence the suit was filed.

Analysis and Decision

Defendant 1—firm has 8 partners and the names of the partners are reflected in the record maintained by the Registrar of Firms. Hence, it was incumbent upon the plaintiffs to implead all the partners of defendant 1 – firm.

The Bench stated that, there is no qualm over the claim of the plaintiffs that defendant 1 is a registered partnership firm and defendants 2 to 4 are its partners.

Section 25 of the Partnership Act, 1932, provides that every partner is liable, jointly with all the other partners and also severally for all acts of the firm done while he is a partner. 

High Court stated that, a partnership firm does not have any existence apart from its partners. Therefore, a decree in favour of or against the firm in the name of the firm has the same effect like a decree in favour of or against the partners.

Hence, when a firm incurs a liability, it can be assumed that all the partners have incurred that liability and so the partners remain liable jointly and severally for all the acts of the firm.

In view of the above, Court concluded by stating that the plaintiffs are not enjoined to implead all the partners of the firm.

Impleadment of the rest of the partners is not necessary. [Aziz Amirali Ghensani v. Ibrahim Currim & Sons, Interim Application (L) No. 1897 of 2022, decided on 8-4-2022]


Advocates before the Court:

Mr. Rashmin Knandekar, a/w Ms. Karishni Khanna, i/b Amit Tungare, Ms. Jill Rodricks, Mr. Vineet Jain and Mr. Deep Dighe,for the Plaintiffs.

Mr. Siddha Pamesha, a/w Declan Fernandez, i/b Purazar Fouzdar, for Defendant no.4/Applicant in IA.

Mr. Jamsheed Master, i/b Natasha Bhot, for Defendant no.3. Mr. Zain Mookhi, a/w Ms. Janhavi Doshi, i/b Manir  Srivastava Associates, for Defendant no.2.

Customs, Excise and Services Tax Appellate Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): The Division Coram of P. Anjani Kumar (Technical Member) and P. Dinesha (Judicial Member) allowed appeals against the order of First Appellate Authority which upheld the demand of service tax by the adjudicating authority.

Show cause notices were issued based on the agreement between players and franchisee and MOU between M/s. United Breweries Limited (UBL for short) and M/s. Royal Challengers Sports Private Limited (RCSPL for short), alleging thereby that the appellant had provided the services of promotion or marketing of goods/services by engaging himself in carrying advertising, promotional activity, team endorsement provided by M/s. RCSPL/franchisee/co-sponsors and hence, the same was taxable in terms of Section 65(105)(zzb) of the Finance Act, 1994. It was further proposed that the appellant had also provided the services under the category of “Business Auxiliary Service” as the services provided by the appellant were covered under (i) and (ii) to Section 65(19) of the 1994 Act. Thus, service tax was demanded for the period 2009-10 and 2008-09, apart from interest under Section 75 and penalties under Sections 76 and 77.

In the reply the appellant had denied of any liability however, the adjudicating authority chose to confirm the demand of service tax as well as interest and penalties. Appeal was made to the first appellate authority wherein the order of the adjudicating authority was upheld, thus the instant appeal was filed.

The Tribunal agreed with the contention of the senior advocate for the appellant that the issue was no more res integra as the very same issue was considered by the Kolkata Bench of the CESTAT in Sourav Ganguly v. Commissioner of Central Goods & Service Tax, Kolkata, 2020 SCC OnLine CESTAT 378 wherein, the issue has been decided in favour of a similarly placed taxpayer. The Kolkata Bench had taken into account the decision of Bombay High Court in the case of Indian National Shipowners’ Association v. Union of India, 2008 SCC Online Bom 1187 wherein it had been held that the activity of the appellant therein could not be subjected to levy of service tax under Business Auxiliary Service prior to July 1st, 2010.

The Tribunal finally relying on the order of the Kolkata Bench decision allowed the appeal and held that there is no liability on the appellant and hence, demands raised for both the periods cannot sustain.[Anil Kumble v. Commr. of Central Excise, Customs & Service Tax, 2022 SCC OnLine CESTAT 105, decided on 31-03-2022]


Mr. V. Raghuraman, Senior Advocate For the Appellants

Mr. P. Gopakumar, Additional Commissioner (AR)


Suchita Shukla, Editorial Assistant has reported this brief.

National Company Law Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal: The Coram of Bachu Venkat Balaram Das (Judicial Member) and Narender Kumar Bhola (Technical Member) initiates insolvency proceedings against Logix City Developers due to default in payment.

The Operational Creditors, Colliers International (India) Property Services Private Limited sought an order to initiate the Corporate Insolvency Resolution Process of the Corporate Debtor viz., Logix City Developers Private Limited, declare  moratorium and appoint Interim Resolution Professional.

Background

The Operational Creditor’s case was that the parties entered into an agreement for providing construction for Bloom Zest Project at Noida and appointed the operational creditor as its project manager. On providing various services, the Operational Creditor raised various invoices and against some of the invoices raised, the Corporate Debtor being unable to pay its obligations allotted a residential unit to the Operational Creditor.

Vide an email, the Corporate Debtor was requested to pay the Operational Debt. However, he failed to do so. Hence, a demand notice was issued to him.

Corporate Debtor acknowledged and admitted its liability to pay the Operational Debt. Therefore, the present petition was filed.

Corporate Debtor on realizing the prevalent real estate conditions caused due to COVID-19 pandemic, failed in paying the amounts as claimed by the Operational Creditor under Demand Notice. Further, it stated that the delay in payment of installment amounts was due to the fact that the construction of the said project was stopped due to various EPCAJ NGT Orders and thereafter unprecedented conditions created due to COVID-19 Pandemic.

Additionally, the Corporate Debtor stated that it is an indisputable fact that the Real Estate Business is going through slump whereby all the builders and promoters of the real estate projects are experiencing heavy economic losses.

Analysis and Decision

Tribunal found that the Corporate Debtor failed to discharge its liability as the admitted amount remained unpaid as on date.

“…this authority has to only satisfy itself regarding default in payment by the corporate debtor towards the operational creditor and there is no pre-existing dispute”

In the present matter, the above two conditions are fulfilled, hence it deserves to be admitted. Therefore, the Tribunal initiated the CIR Process of Corporate Debtor.

Tribunal appointed Insolvency Resolution Professional Yogesh Kumar Gupta as Interim Resolution Professional as proposed by the Operational Creditor.

Further, Moratorium was declared which shall have effect from this Order till the completion of CIRP for the purposes referred to in Section 14 of the IBC, 2016. [Colliers International (India) Property Services (P) Ltd. v. Logix City Developers (P) Ltd., 2022 SCC OnLine NCLT 37, decided on 22-3-2022]


Advocates before the Tribunal:

Operational Creditor: Adv. S. Sriranga, Adv. Balaji Srinivasan, Adv. Garima Jain and Adv. Gayatri Mohite

Corporate Debtor: Adv. Vijay Kaundal

Patiala House Courts, Delhi
Case BriefsDistrict Court

Patiala House Courts, New Delhi: Shreya Arora Mehta, Metropolitan Magistrate, while addressing a matter with regard to Section 138 of the Negotiable Instruments Act stressed the liability of a Director for such offences.

Accused Company through accused 2 – Chairman cum Managing Director along with accused 3 its Managing Director and accused 4 Deputy Managing Director approached the complainant in the year 2006 to engage their services for releasing advertisement of the accused company in various newspapers and publications.

The complainant agreed to extend a credit period of 60 days for payment of the bills with statutory taxes and services charges/commission. The accused persons sent a release order to the complainant for advertisement in various print media. Bills were raised on monthly basis for service provided.

It was stated that till the second quarter of 2008 the complainant received most of the payment but thereafter there was a default by the accused persons in making the time-bound scheduled payment. Later bills of 6 months were kept pending due to which the complainant was forced to ask the Indian Newspaper Society to issue a caution notice to its members regarding the accused company.

The accused company issued 84 cheques with the assurance that on presentation the same would be encashed, but all the cheques were dishonoured and returned unpaid for the reasons either “funds insufficient” and or exceeding arrangement.

Accused persons did not reply to the legal notice under Section 138 of the Negotiable Instruments Act, 1881. Hence the present complaint was filed.

Accused 3 admitted his signatures on all the cheques but stated that the same was done under the pretext of accused 2 who was the chairman cum director of the accused 1. The accused 4 submitted that he had no dealings whatsoever with the complainant company.

Section 141 of the Negotiable Instruments Act, 1881, does not say that a Director of a company shall automatically be vicariously liable for commission of an offence on behalf of the company.

“…the complainant has to make specific averments in the complaint that the accused persons were incharge or were responsible to the company or conduct of the business of the company. And prosecution could be launched not only against the company on behalf of which the cheque issued has been dishonoured, but it could also be initiated against every person who at the time the offence was committed, was in charge of and was responsible for the conduct of the business of the company.”

In the present case, specific averments were made against accused 3 and 4 that they are in charge of and responsible to the accused 1 company for the conduct of the business of the company and were looking after the business of the company and the offence under Section 138 NI Act had been committed with the knowledge, consent and connivance of the accused 3 and 4 besides other and was attributable to neglect on their part.

“…under Section 139 of the Negotiable Instrument Act, 1881 there is a presumption in favour of the complainant that the cheques in question were issued by the accused in discharge of his lawful liability. It is mandatory for the court to draw a presumption against the drawer/accused. However, the said presumption is rebuttable.” 

Accused persons raised arguments that no work order, release order or publication bill was placed on record nor the complainant produce the details of the newspapers etc. To substantiate the same, the accused person had failed to prove on record any admissible and reliable evidence to discharge their onus of rebutting the initial presumption in favour of the complainant as enshrined under Section 139 NI Act.

In view of the above, the essentials of Section 138 NI Act stand duly established and accused persons failed to rebut the same.[Prominent Advertising Services v. Koutons Retail India Ltd., 2022 SCC OnLine Dis Crt (Del) 12, decided on 22-3-2022]

Case BriefsHigh Courts

Delhi High Court: While addressing a matter revolving around Section 138 of the Negotiable Instruments Act, 1881, Subramonium Prasad, J., held that Courts should primarily proceed on the averments in the complaint, and the defence of the accused cannot be looked at the stage of issuing summons unless it can be shown on admitted documents which the Supreme Court described as “unimpeachable in nature and sterling in quality” to substantiate that there was no debt due and payable by the person who has issued the cheque or that the cheque amount is large than the debt due.

Petitioner sought to call for record and quash complaint about the offence under Section 138 of the Negotiable Instruments Act, 1881.

Averments made in the complaint were:

Petitioner had approached the complainant/respondent and requested for a friendly loan of Rs 9,00,000, later after a few months he again approached for a loan of Rs 6,00,000 and in the said amount, Rs 4,90,000 was given through RTGS and Rs 1,10,000 was given in cash.

Further, while returning the amount, the petitioner issued a cheque, which was returned by the bank with the remark “Exceeds Arrangement”. Even after notice, the petitioner did not pay the amount, hence a complaint under Section 138 of the NI Act was registered.

Petitioner submitted that he had given instructions to his nephew who deposited a sum of Rs 2,69,000 through UP in the bank account of the wife of the complainant, hence the cheque of Rs 15,00,000 presented by the complainant was greater than the amount due, hence the complaint shall be quashed.

Analysis, Law and Decision

High Court expressed that the purpose of inserting Chapter XVII in the Negotiable Instruments Act, 1881 was to bring out sanctity in commercial transactions.

In the present matter, it was noted the petitioner had issued a cheque for a sum of Rs 15,00,000.

Section 139 of the Negotiable Instrument Act, 1881, creates a presumption that unless contrary is proved, the holder of a cheque has received the cheque for discharge in whole or in part of any debt or other liability.

The Supreme Court’s decision in Bir Singh v. Mukesh Kumar, (2019) 4 SCC 197, was also cited.

Petitioner contended that the cheque deposited by the complainant was for a greater amount as a sum of Rs 2,69,000 had already been paid.

Further, it was stated that the details of the UPI (Unified Payment Interface), which has been filed by the petitioner, show that the amounts deposited in the bank account of the wife of the complainant by the nephew of the petitioner cannot be taken as evidence which is unimpeachable in nature and sterling in quality so as to demolish the case of the respondent and to substantiate the contention of the petitioner that the proceedings initiated under Section 138 of the Negotiable Instrument Act, 1881 is a complete abuse of the process of law.

The Bench stated that the Courts should primarily proceed on the averments in the complaint, and the defence of the accused cannot be looked at the stage of issuing summons unless it can be shown on admitted documents which the Supreme Court described as “unimpeachable in nature and sterling in quality”.

“It is well settled that the inherent powers should be exercised sparingly, with circumspection and in the rarest of rare cases when the Court is convinced, on the basis of material on record, that allowing the proceedings to continue would be an abuse of process of law or if the ends of justice is required that the proceedings ought not to be quashed.”

Hence, High Court denied accepting that the amounts deposited by the nephew of the petitioner in the bank account of the wife of the complainant was towards the debt incurred by the petitioner.

Therefore, no case for quashing the complaint was made out. [Satinderjeet Singh v. Sameer Sondhi, 2022 SCC OnLine Del 635, decided on 28-2-2022]


Advocates before the Court:

For the Petitioner: Deepak Kohli, Advocate

For the Respondent: None

Saket Court
Case BriefsDistrict Court

Saket District Court, Delhi: Sonam Singh, MM (NI Act) acquitted the accused who was charged with an offence under Section 138 of the Negotiable Instruments Act, on finding that he raised sufficient doubt about the existence of a legally sustainable liability.

Factual Background

Complainant was the daughter-in-law of the accused. She alleged that in August 2020, the accused who was her father-in-law promised to pay her maintenance of Rs 45,000 every month for his grandson.

Further, she alleged that in lieu of the promised amount he handed over a cheque. On not receiving the amount in her bank account, she enquired with the bank and got to know that initially the cheque was cleared but due to the accused being hand-in-glove with certain officials from the said bank, the amount of Rs 45,000 which was credited in her account was subsequently debited from her account.

Complainant alleged that since she suspected that the accused had cheated her, she requested the bank to disclose the status of her cheque and after much inconvenience, the bank told her that due to the difference between words and figures written on the cheque, it was wrongly cleared by them initially.

Adding to the above allegations, she also stated that the amount was debited from her account as the accused had conspired with the bank official and alleged that she was appalled when she got to know that the cheque was dishonored on the ground of “CHEQUE IRREGULARLY DRAWN/AMOUNT IN WORDS AND FIGURES DIFFERS” and further on contacting the accused, he refused to pay the amount of cheque in question.

It was also alleged by her that she got to know from the Bank that the accused had personally asked the bank to stop the payment of the cheque in question and he had deliberately written the wrong amount in words on the cheque.

Since the accused did not pay the complainant within 15 days of service of legal notice, the present complaint was filed seeking prosecution of the accused of the offence punishable under Section 138 NI Act.

Analysis, Law and Decision

After referring to the provisions of Negotiable Instruments Act, Bench referred to the Supreme Court decision in Kusum Ingots & Alloys Ltd. v. Pennar Peterson Securities Ltd., (2000) 2 SCC 745, wherein the Court discussed the conditions of Section 138 NI Act which are to be fulfilled for a cause of action to arise in favour of the complainant.

Court expressed that,

The object underlying Section 138 of the NI Act is to promote faith in the efficacy of the banking system and give credibility to negotiable instruments, in business transactions. The intention is to punish those unscrupulous persons, who issued cheques for discharging their liabilities, without really intending to honour the promise.

Issues in the present matter:

  • Service of legal demand notice
  • Cheque being valid and return memo being fabricated
  • Whether the cheque in question can be said to have been issued in discharge of a legally enforceable debt or liability or not

Service of legal demand notice

Court stated that considering the presumption of due service, the accused was under an obligation to lead evidence to prove that the notice was not served on him. However, he has failed to bring any evidence to rebut the presumption of due service of legal demand notice.

Mere denial of not receiving the legal demand notice would not amount to proving his defence.

 Validity of Cheque and genuineness of the return memo

It was proved that the cheque was dishonoured on the instructions of the accused who gave instructions to the bank to reverse the entry, admitted by him in his statement under Section 313 CrPC.

The Court witness brought a letter issued by the bank that erroneously the cheque number mentioned in the return memo dated 11.09.2020 was 682148 instead of 682146. He further explained in his cross-examination conducted by the counsel for the complainant that the typographical mistake of the cheque number in the return memo is a “clerical mistake and should not have occurred.”

 Accused did not bring any evidence to show that there was any conspiracy between the complainant and the bank to issue a fabricated return memo. The Bench stated that it was relevant to note that the accused had admitted having signed the cheque on a bank account maintained in his name and filled all the particulars of the cheque except the name of the complainant.

Question of Liability

It is well-settled position of law that when a negotiable instrument is drawn, two statutory presumptions arise in favour of the complainant, one under Section 139 NI Act and another under Section 118(a) of the NI Act, which is a presumption of the cheque having been issued in discharge of legal liability and drawn for good consideration, arises.

Bench observed that it is explicit that on proof of foundational facts, the Court will presume that cheque was made or drawn for consideration and that it was executed for discharge of debt or liability, once the execution of negotiable instrument is either proved or admitted and the burden of proof lies upon the accused to rebut the said presumption.

This is an example of the rule of ‘reverse onus’ in action, where it is an obligation on the accused to lead what can be called ‘negative evidence’. The accused is not to prove a fact affirmatively, but to lead evidence to demonstrate the non-existence of debt or liability. Since, this rule is against the general principle of the criminal law of ‘presumption of innocence in favour of the accused’ and considering that such negative evidence, by character is difficult to lead, the threshold for the accused to rebut the presumption is on the scale of the preponderance of probabilities.

Court opined that, in the present matter, the accused succeeded in rebutting the presumption of legal liability, by exposing the inherent improbability of the case of the complainant.

Bench stated that, the improbability of the complainant’s story was further manifest from the fact that she had not filed any case for maintenance and only a case under DV Act had been filed. She failed to bring on record any document or court order to show that the accused promised her the maintenance of Rs 45,000 for his grandson.

Further, the accused, in his defence had argued that the cheque was not handed over to the complainant. In his statement under Section 313 CrPC, he stated that only when he received a message from his bank that an amount of Rs 45,000 was debited from his account, then he contacted his bank and told the bank he had not issued any such cheque. Any reasonable man would do as what accused did and direct his bank to stop the payment or reverse the entry.

The reason for not filing a police complaint with respect to misuse of the cheque by the accused was not filed as the complainant was his daughter-in-law and in Court’s opinion the said explanation was believable as the same could have caused him social embarrassment.

Conclusion

Accused raised sufficient doubt about the existence of a legally sustainable liability, which the complainant failed to prove after the onus shifted on her and therefore the end result was that the accused was acquitted of offence under Section 138 NI Act.

In view of the above complaint was dismissed. [Shakun Singh v. Chandeshwar Singh, CC No. 397 of 2020, decided on 24-12-2021]

Case BriefsDistrict Court

Dwarka Court, New Delhi: Shipra Dhankar, MM (NI Act) on noting that the dishonour of cheque occurred in consequence of an illegal and void agreement, dismissed the complaint under Section 138 of the Negotiable Instrument Act, 1881.

What are we dealing with in the present matter?

The Complainant was approached by the accused with the proposal that, in return for a commission/liaison fee, the accused can obtain in the complainant’s favour a tender issued by the NTPC where the accused enjoys “good links” with the higher authorities.

Thereafter, the complainant, after having applied for the said tender and paid the amount demanded from him, received from the accused a tender award letter, however, the said letter was later found to be forged.

In view of the above incident, the complainant demanded his money back from the accused, pursuant to which certain cheques were drawn in his favour out of which one got dishonoured.

Complainant approached the Court due to the dishonour of the above-said one cheque.

Analysis, Law and Decision

Section 138 NI Act clarifies that “debt or other liability” means a legally enforceable debt or other liability. The said legal position was fortified by the decision of Delhi High Court in Virender Singh v. Laxmi Narain, 2006 SCC OnLine Del 1328 wherein it was found that if the consideration or object of an agreement is unlawful, illegal or against the public policy, the agreement itself is void and legally unenforceable, as a result of this, any cheque issued in discharge of a liability under such a void agreement, cannot be said to be issued in discharge of a legally enforceable debt o liability.

The Bench also relied on Section 23 of the Indian Contract Act to see whether the agreement entered into by both the parties was for a lawful consideration/object or not.

Court on noting the fact that the sole purpose of the agreement was to obtain a tender in favour of the complainant, not on the basis of its intrinsic merit, but on the basis of “good links” of the accused with the NTPC higher authorities. Such agreements are expressly rendered void and of no legal consequence by virtue of Section 23 of the Indian Contract Act.

Hence the agreement was illegal and void.

In the present matter, presumption stood rebutted by the Complainant’s own version. The complainant’s own depiction of the transaction disclosed that the same was legally unenforceable and void.

Lastly, the Court referred to the maxim “in pari delicito portior est conditio defendantis”, which embodies the principle: “the Courts will refuse to enforce an illegal agreement at the instance of a person who is himself a party to a illegality or fraud”.

In light of the above discussion, the cognizance in the present complaint was declined and the complaint was dismissed. [Virender Dahiya v. Keshav Kumar, CC No. 11747 of 2021, decided on 10-1-2022]

Case BriefsHigh Courts

Bombay High Court: Bharati Dangre, J., Whether the Insurance Company can be absolved of its liability to pay compensation under the Employees Compensation Act, 1923, if the employee who has succumbed to an accident which took place during the course of employment, is a minor?

Appellants filed a claim based on the premise that the deceased was aged 18 at the time of the accident and was receiving wages of Rs 5,500 per month and compensation of Rs 6,22,545 was assessed.

The insurer opposed the above-said claim before the Commissioner/Labour Court, and it was disputed that the accident suffered by the deceased arose out of or in the course of employment with the OP.

Further, it was denied that there was any nexus between the alleged injury and the alleged accident and since the police papers revealed the deceased’s age was 15 years, it was stated that the claim was not maintainable under the Workmen’s Compensation Act, 1923, hence the same shall be dismissed.

Analysis, Law and Decision

Workmen’s Compensation Act, 1923 does not prohibit payment of compensation to a minor.

There is no age limit for a person to be employed as an employee under the Workmen’s Compensation Act, though Article of the Constitution of India, employment of child labour before 14 years in any factory or mine or any hazardous employment, there are enactments in the form of Child & Adolescent Labour (Prohibition & Regulation Act), 1986 where engaging services of children below 14, in any hazardous avocation, is an offence.

Elaborating further, it was stated that Workmen’s Compensation Act is a beneficial piece of legislation and if a person engaged by an employer, as an employee is a minor and his appointment, though is prohibited by any law in existence, meet with an accident and sustain a disability which can be a total or partial disability, the moot question is:

Whether an employee should be denied the compensation merely on the ground that the employer had engaged him by contravening the law and he shall be kept out of the benefits which would have been otherwise available to him on account of an accident which he has suffered, which occurred in his workplace and out of the course of his employment or whether his family can be denied compensation on his death?

Bench expressed that the impugned decision took a harsh stand and refused to fasten liability of compensation on the Insurance Company by recording that the deceased was a minor and insurance company was not liable to pay compensation on the said ground.

The insurance policy in the present matter clearly covered two persons and the liability covered a person employed by the insured for operation and maintenance or loading/unloading which covered a cleaner.

Labour Court’s approach defeated the very spirit and rationale behind the Employees Compensation Act and the claimants who were the parents of the deceased were held entitled to recover compensation only from the employer with very negligible chance of recovering the compensation.

High Court disapproved the above approach of the labour court and opined that the Insurance Company cannot be absolved of its liability to pay compensation to the claimants, the dependents of the deceased. Therefore, the impugned judgment of the Commissioner was modified to the limited extent of fixing the liability jointly and severally upon the employer and the Insurance Company.

First Appeal No. 246 of 2015

In this matter, Insurance Company was aggrieved by the award of compensation to the parents of the deceased, who succumbed to the injuries in the accident.

Labour Court had directed the employer and the Insurance company jointly and severally liable to pay compensation.

Claimant 1 had set up a claim under the Workmen’s Compensation Act by filing the application claiming that his son was employed by the OP on his Motor Tempo as loader and the said tempo met with an accident due to which the son died.

High Court stated that when the written statement on oath before the Commissioner and the certificate issued by the employer is juxtaposed against his statement recorded by the police during the course of investigation, the statement recorded under oath, admitting that deceased Deepak was his employee, assumed importance.

Bench expressed that in view of the inconsistency in the statement given to the police by the employer, denying any employer-employee relationship on one hand and the statement on oath filed in the form of written statement before the Commissioner, the Commissioner has rightly given weightage to the statement on oath and accepted the employer-employee relationship.

In view of the above, Court found no reason to interfere with finding of the Commissioner. [Mohammed Ali Abdul Samad Khan v. Dawood Mohd. Khati, 2021 SCC OnLine Bom 6670, decided on 10-12-2021]


Advocates before the Court:

Mr. Amol Gatne i/b Ms. Swati Mehta for the appellants in First Appeal No.169 of 2014 and for the respondents in First Appeal No.246 of 2015.

Mr. D.R. Mahadik for the appellant in FA No.246/2015 and for respondent in FA No.169/2014.

Case BriefsDistrict Court

XVIII Addl. Chief Metropolitan Magistrate, Bengaluru City: Manjunatha, XVII Addl. C.M.M., found the accused guilty for the offence under Section 138 of the Negotiable Instruments Act, on his failure to rebut the statutory presumption in favour of the holder of cheque.

Background

The complainant had filed the instant complaint under Section 200 of Code of Criminal Procedure read with Section 138 of the Negotiable Instruments Act against the accused alleging that, she had committed the offence punishable under Section 138 NI Act.

Complainants and the accused were well known to each other as they were residing in the same locality and in 2018, the accused had approached the complainant for a loan of Rs 4,00,000 for the purpose of urgent legal and domestic necessities and promised to repay the same within 6 months.

Considering her request the complainant had paid Rs 4,00,000 to the accused by way of cash.

The accused and her husband had executed an undertaking by acknowledging the receipt of the amount, but she failed to keep up her promises. On repeated demand and request, the accused issued a cheque but the same was returned unpaid with an endorsement “Funds Insufficient” in the drawer’s account.

Further, despite the notice, the accused had not paid the cheque amount and thereby she had committed an offence punishable under Section 138 NI Act.

Court had issued summons and later, the accused was enlarged on bail.

As per the direction of the Supreme Court in Indian Bank Assn. v. Union of India, (2014) 5 SCC 590, this Court treated the sworn in statement of the complainant as complainant evidence.

Analysis, Law and Decision

Court cited the decision of Sukur Ali v. State of Assam, (2011) 4 SCC 729, in which the Supreme Court opined that even assuming that the counsel for the accused does not appear because of the counsel’s negligence or deliberately, even then the Court should not decide a criminal case against the accused in the absence of his counsel since an accused in a criminal case should not suffer for the fault of his counsel and in such a situation the Court should appoint another counsel and in such a situation the Court should appoint another counsel as amicus curiae to defend the accused.

In the decision of K.S. Panduranga v. State of Karnataka, (2013) 3 SCC 721, Supreme Court held that, “regard being had to the principles pertaining to binding precedent, there is no trace of doubt that the principle laid down in Mohd. Sukur Ali (supra) by the learned Judges that the court should not decide a criminal case in the absence of the counsel of the accused as an accused in a criminal case should not suffer for the fault of his counsel and the court should, in such a situation, must appoint another counsel as amicus curiae to defend the accused and further if the counsel does not appear deliberately, even then the court should not decide the appeal on merit is not in accord with the pronouncement by the larger Bench in Bani Singh” .

The Court further held that in view of the aforesaid annunciation of law, it can safely be concluded that the dictum in Mohd. Sukur Ali (supra) to the effect that the court cannot decide a criminal appeal in the absence of counsel for the accused and that too if the counsel does not appear deliberately or shows negligence in appearing, being contrary to the ratio laid down by the larger Bench in Bani Singh (supra), is per incuriam. Furthermore, the transaction alleged in the case is purely a commercial transaction enetered into between two private individuals and the accused is not in judicial custody and he is not fall under any of the parameter under legal services authorities Act to get free legal aid. Under such circumstance question of appointing advocate for accused at the state cost may not arise at all.”

 Question for Consideration:

Whether the complainant proves that, accused issued cheque for Rs 4,00,000 towards discharge of her liability, which was returned unpaid on presentation for the reason “Fund Insufficient” and despite of notice she had not paid the cheque amount and thereby committed an offence punishable under Section 138 of NI Act?

Analysis, Law and Decision

Court stated that, Sections 118 and 139 of NI Act raises a presumption in favour of the holder of the cheque that he had received the same for discharge in whole or in part of any debt or other liability.

Further, it was added that the accused can take probable defence on the scale of the preponderance of probability to rebut the presumption available to the complainant.

Whether the accused had successfully rebutted the said presumptions of law?

Court observed that the accused had not disputed the issuance of cheque and her signature in the cheque.

When the drawer has admitted the issuance of the cheque as well as the signature present therein, the presumptions envisaged under section 118 read with section 139 of NI Act, would operate in favour of the Complainant.

 The Bench added that the above-said provisions laid down a special rule of evidence applicable to negotiable instruments. The presumption is one of law and thereunder the court shall presume that the instrument was endorsed for consideration.

“…when the complainant has relied upon the statutory presumptions enshrined under section 118 read with section 139 of NI Act, it is for the accused to rebut the presumptions with cogent and convincing evidence.”

It is worth noting that, Section 106 of Indian Evidence Act postulates that, the burden is on the accused to establish the fact which was especially within his special knowledge.

Hence, the burden is on the accused to prove that the cheque in question was not issued for discharge of any liability.

With regard to proof of existence of legally enforceable debt was concerned, Court referred to the decision of Supreme Court in Rangappa v. Mohan, (2010) 11 SCC 441, wherein it was observed that,

“In the light of these extracts, we are in agreement with the respondent-claimant that the presumption mandated by section 139 of the Act does indeed include the existence of the legally enforceable debt or liability”

 In another decision in, T. Vasanthakumar v. Vijayakumari, (2015) 8 SCC 378, it was held that once the accused has admitted the issuance of Cheque, as well as signature on it, the presumption under Section 139, would be attracted.

In the present matter, despite giving sufficient time, the accused neither led defence evidence nor cross-examined PW1, therefore the evidence placed by the complainant remained unchallenged and there was no reason to disbelieve the version of the complainant.

The complainant had not produced any document regarding the lending of the amount to the accused, but in the absence of any contrary evidence, the unchallenged testimony of the complainant had to be believed. As such there was no rebuttal evidence on behalf of the accused to rebut the presumption available under Sections 118 and 139 of the NI Act.

Therefore, the complainant’s case was acceptable.

The complainant proved that, for discharge of liability accused had issued a cheque and she had intentionally not maintained a sufficient amount in her account to honour the said cheque.

In view of the above discussion, the complainant had proved the guilt of the accused punishable under Section 138 NI Act.

Supreme Court in a decision of H. Pukhraj v. D. Parasmal, (2015) 17 SCC 368, observed that having regard to the length of the trial and date of issuance of cheque, it was necessary to award reasonable interest on the cheque amount along with cost of litigation.

The Bench held that rather than imposing punitive sentence if sentence of fine is imposed with a direction to compensate the complainant for its monetary loss, by awarding compensation under Section 357 CrPC, would meet the ends of justice.

Lastly, Court opined that it was just and proper to impose fine of the amount of Rs 4,55,000 which included interest and cost of litigation. [N. Muniraju v. Manjula, Criminal Case No. 25494 of 2019, decided on 1-1-2022]


Advocates before the Court:

For the complainant: S.K

For the accused: G.V.K