Case BriefsHigh Courts

Madras High Court: Teekaa Raman, J., observed that there is no mandatory provision under the Negotiable Instruments Act that both the signature and thumb impression has to be obtained for a pro-note and the lower Appellate Judge has totally misguided and misused the provision of the Negotiable Instruments Act, regarding the burden of proof and not even followed basic rudimentary of Section 20 of the Negotiable instruments Act.

Plaintiff filed a suit against the respondent for recovery of money of Rs 1,00,000 each, borrowed by him and executed promissory notes in favour of the plaintiff for consideration.

Resisting the suit, the defendant filed a written statement admitting the execution of the suit promissory notes. However, the defendant raised the plea that the promissory notes had been executed towards security for the loan borrowed and that the loan due was settled by way of execution of a sale deed in the name of the plaintiff’s wife.

Further, it was alleged that the suit promissory notes were not supported by consideration and the blank promissory notes were filled up for the purpose of filing the suit.

Trial Court considered the statutory presumption under Section 118 of the Negotiable Instruments Act and the authority of the holder in due course to fill up the promissory notes under Section 20 of the Act, decreed the suit by the judgment and decree.

First Appellate Authority had erroneously allowed the appeal and observed that the thumb impression of the defendant was not obtained and that the signature in each promissory note was different from each other on comparison by a naked eye. Accordingly, the trial Court’s decision was reversed.

On being aggrieved with the above, the plaintiff approached this, Court.

Analysis, Law and Decision


Questions for Consideration:

  1. Whether the first Appellate Court erred in law in not considering the scope of Section 118 of the NI Act and the legal presumptions arising under it before dismissing the suit by reversing the well-considered reasonings of the trial Court?
  2. Whether the first Appellate Court erred in law in rejecting the plaintiff’s right to fill up the suit promissory notes under Section 20 of the Negotiable Instruments Act whereupon the holder is authorized to fill up the blanks and to negotiate the instrument for a certain amount?
  3. Whether the first Appellate Court is correct in dismissing the suit on the basis of a comparison by naked eye particularly when the defendant has categorically admitted the “execution” and “issuance” in his written statement and in evidence before the Court?

High Court observed that the trial Court had rightly invoked the presumption under the Negotiable Instruments Act and called upon the defendant to rebut the presumption. However, in Court’s opinion, the Appellate Court had not even considered the presumption under the NI Act and not followed even the burden of proof or onus of proof as stated in the Indian Evidence Act.

The Bench stated that once the signature found in the suit documents has been admitted, there is no need or necessity for the plaintiff to give an explanation for not obtaining the thumb impression in the suit promissory note.

Additionally, the High Court noted that it is trite law that in the case of mandatory presumption, the burden of proof on the defendant in such a case would not be as light.

When there is a statutory presumption in favour of the plaintiff, it has to be rebutted by proof and not by a bare explanation. Unless the explanation is supported by proof, the presumption created by the provision cannot be said to be rebutted.

Once statutory presumption is raised, onus of proving absence of consideration is on the executant.

The Bench added that the lower Appellate Court could not understand the facts of the case and had applied wrong preposition of the burden of the proof forgetting the presumption under NI Act and it was the onus of the proof by the defendant to discharge the burden.

Therefore, lower Appellate Court erred in law on rejecting the plaintiff’s right to fill up the suit promissory notes under Section 20 of the NI Act, whereupon the holder is authorized to fill up the blanks and to negotiate the instrument for a certain amount and the “execution” of cheque and “issuance” of cheque in his written statement and in his evidence before the Court, the lower Appellate Court is not right in raising suspicion with regard to the execution merely on the ground that the thumb impression was not obtained.

In view of the above discussion, the second appeal was allowed. [R. Barathbran v. R. Nallathambi, SA Nos. 142 of 2012, decided on 2-3-2022]


Advocates before the Court:

For Appellants: Mr. N. Manokaran

 For Respondent: Mr. C. Prakasam

Case BriefsHigh Courts

Orissa High Court: R K Pattnaik, J. dismissed the petition and held that the ground on which the petition is raised is misconceived and therefore, cannot be sustained.

The facts of the case are such that the  petitioner is an accused in a complaint case filed by OP 1 pending before the court below for an offence punishable under Section 138 of the Negotiable Instruments Act, 1881 ( ‘the NI Act’) alleging therein that the former had taken a hand loan of Rs.40,000/- to meet his personal needs and when it could be paid back, some henchmen of OP 1 forcibly entered inside his residence and managed to obtain a cheque for an amount of Rs.40,000/- drawn in the UCO Bank, Khurda Branch, Khurda and thereafter, presented it before the bank for encashment but it could not be honored for insufficient funds in the account and again after five months, it was again submitted and yet dishonored with a similar endorsement dated 18th October, 2010. The cognizance was taken and now it is raised for dispute that court below could not have taken cognizance of the offence under Section 138 of the N.I. Act after it was presented for encashment once again after about five months which is not permitted under law. Hence the petitioner assailed the legality and judicial propriety of order of cognizance and invoked jurisdiction under Section 482 Cr.P.C on the grounds inter alia that it is not sustainable in law and therefore, liable to be quashed.

The issue that came for consideration is that the question is, whether on the basis of a statutory notice issued by OP 1 subsequent to dishonor of cheque about five months before, the learned court below could have entertained the complaint and taken cognizance of offence under Section 138 of the N.I. Act as against the petitioner?

The Court relied on Sadanandan Bhadran v. Madhavan Sunil Kumar, (1998) 6 SCC 514 and observed that to the extent that second and successive presentation of a cheque is legally permissible as long as it is within six months or validity of the cheque, whichever is earlier.

The Court reiterated that a prosecution based on a second or successive default in payment of the cheque amount should not be impermissible simply because no prosecution based on the first default which was followed by statutory notice and a failure to pay had not been launched. Hence no real or qualitative difference exists between a case where default is committed and prosecution immediately launched and another, where the prosecution is deferred till the cheque presented again gets dishonored for the second or successive time.

With regard to the purport of NI Act the Court observed that if the entire purpose underlined Section 138 of the N.I. Act is to compel the drawers to honor their commitments made in course of business or other transactions, there is no reason why a person who has issued a cheque which is dishonored and who failed to make payment despite statutory notice served upon him should be immune to prosecution simply because the holder of the cheque had not rushed to the court with a complaint based on such default or for the reason that the drawer has made the holder defer prosecution promising to make arrangements for funds or on account of any other similar situation.

The Court concluded after perusing various judgments on the similar point of law that such a criminal action on a subsequent statutory notice or a notice sent for the first time after dishonor of cheque previously for which prosecution was not launched on the promise of the accused to make arrangement for funds, a complaint cannot be held as not maintainable.

The Court thus observed that in the present case OP 1 did not send any statutory notice after the cheque was dishonored in the month of May, 2010 but once again presented it within the validity period of the cheque and thereafter, issued the statutory notice as required under law and under such circumstances, it cannot be said that the complaint is invalid.

The Court thus held “the contention of the petitioner vis-à-vis maintainability of the complaint on the ground raised is misconceived and therefore, cannot be sustained.”

[Gadadhar Barik v. Pradeep Kumar Jena, 2022 SCC OnLine Ori 1052, decided on 07-04-2022]


Appearances

For Petitioner- Mr. A. Pattanaik

For Opposite Parties- Mr. D.R. Parida


Arunima Bose, Editorial Assistant has reported this brief.

Case BriefsHigh Courts

Madhya Pradesh High Court: Atul Sreedharan, J. allowed a petition which was filed for quashing of Crime which was registered for an offence under Section 420 of IPC.

The FIR was filed by Sunita Singh daughter of late Vishwanath Singh, Villa Mohidpur, Gorakhpur, Uttar Pradesh wherein she stated that she and her brother (current petitioner) had equal share in the property of her late father and in this respect her brother had given her some cheques after taking her signature on some paper. She deposited the seven cheques but all the seven cheques had been dishonoured due to closure of account. Thus, her case was that her brother cheated her of total of 64 lakhs.

Counsel for the State has read out from the 161 statement of the complainant and contended that in addition to what was stated in the FIR she suffered the loss of her Chequebook against which she has given stop payment instructions to her Bank and thereafter she says, that she suspects that perhaps, it is her brother i.e., the petitioner no.1 and her sister-in-law, the petitioner no.2 who may have taken away these chequebooks with the intent of defrauding her. it was brought to the notice of the Court that she does not say that any of the cheques from the said chequebook have been used by anyone on account of which she suffered a loss. The second set of allegations in the 161 statement was conspicuous by its absence in the FIR and appears to have been introduced in the police statement as an afterthought so as to implicate the petitioners for theft.

Counsel for the petitioners has submitted that the petitioner 1 and the petitioner 2 were related to each other. Father of the petitioner 1 and the respondent 2 had two wives. From the first wife, a son (Jai Prakash Singh) was born. The second wife was Saraswati Singh, from whom the petitioner 1 and the respondent 2 were born. There was a partition in 2006 by which 50% of the share in the father’s property went to Jai Prakash Singh and 25% went to the petitioner 1 Shree Prakash Singh and the remaining 25% went to second wife, the mother of the petitioner 1 and the respondent 2, Saraswati Singh. Subsequently in 2009, there was an MOU between Shree Parkash Singh (the petitioner 1) and Sunita Singh (the respondent 2). As per which Shree Prakash Singh got 60% share in the property of Saraswati Singh and 40% of the share went to Sunita Singh.

Only point to be considered by this Court was whether the dishonour of the cheques could have only given a cause of action to register an FIR for an offence u/s. 420 IPC or whether the cause of action was only for the filing of an offence u/s. 138 of the Negotiable Instruments Act?

The Court stated it is a well settled principle of law that the general law will not prevail over the Special Law as enshrined in the maxim generalia specialibus non derogant. The Court was of the opinion that relief available to respondent 2 may be under the civil law by way of a suit for specific performance, rather than to contort and strain the facts to bring it under the purview of the criminal process. Under the circumstances, the registration of this case was ex-facie malicious and deserves to be quashed.

It was also noted that husband of respondent 2 is a senior police officer in the Indian Police Service belonging to the Madhya Pradesh Cadre and that the possibility of the FIR having been filed under his influence cannot be discounted. The Court in this aspect observed that where the police is reluctant to register the FIR if a poor man approaches the police station with a genuine grievance, the registration of an FIR in a case like the one at hand is rather unthinkable to which Senior Counsel Shri Mrigendra Singh retorted by saying that this Court should rescue itself because of bias.

The Court took great umbrage to the conduct of the senior counsel who has cast aspersions on the neutrality of the Court without adequate cause however it refused to recuse itself and condemned his conduct in strongest possible terms. The Court ordered before the Chairman of the Madhya Pradesh State Bar Council with a request to take the strictest possible action against the senior counsel for his intemperate and unpardonable conduct.

The petition was allowed and the FIR was quashed.[Prakash Singh v. State of Madhya Pradesh, 2022 SCC OnLine MP 670, decided on 07-04-2022]


For petitioners: Mr Surendra Singh Sr. Adv, Mr Simon Benjamin, Mr Sivam Singh

For respondents: Mr A.S. Pathak Govt. Adv., Mr Mrigendra Singh Sr. Adv., Ms Guncha Rasool


Suchita Shukla, Editorial Assistant has reported this brief.

Case BriefsHigh Courts

Karnataka High Court: M. Nagaprasanna, J. allowed the petition and quashed the impugned order regarding attachment of property and auction notification.

The facts of the case is such that the complainant claims to have lent to the accused a sum of rupees two crores by cash in two thousand rupees denomination and the cheque alleged to have issued by the accused is dishonoured. In respect of rupees two crores transaction in cash, the trial Court invoking Section 143-A of the Negotiable Instruments Act, 1881 (‘the Act’ for short) grants interim compensation of Rupees forty lakhs to be paid by the accused to the complainant. In the meantime the complainant exercising the liberty that was granted by the order impugned, initiated process in which order of attachment of the property of the petitioner was passed and a notice of public auction was also issued to auction the property on 25-01-2022. Aggrieved, an instant petition was filed challenging the said order.

Counsel for petitioner Mr. V M Sheelavant and Mr. Mrutyunjaya Halliker submitted that the petitioner is yet to be held guilty and the trial is yet to commence. As an interim measure, 20% of the claim amount is directed to be paid which amounts to Rs.40 lakhs and it is highly improbable that the complainant has dispersed the loan of rupees two crores that too in cash. It is a subject matter of trial.

Counsel for respondents Mr. B V Somapur and Mr. R K Kulkarni submitted that that presumption is operating against the petitioner in terms of provisions of the Act. Since the petitioner has issued the cheque, the liability is admitted and, therefore, the order directing 20% is in tune with law and would seek dismissal of the criminal petition.

The Court observed that the Act was amended by the Amendment Act of 2018 and Section 143A came to be inserted. The purport of the amendment is that the Court may in certain circumstances award interim compensation which shall not exceed 20% of the amount of the cheque and such interim compensation can be permitted to be withdrawn in terms of the said amendment.

The Court further observed that the impugned order does not bear reason as to why 20% of the amount is awarded as interim compensation. There is no application of mind as to why the said compensation has to be awarded. Section 143A is completely misread that once the accused does not plead guilty, the complainant becomes automatically entitled to 20% of the cheque amount as interim compensation.

The Court remarked that, the Legislature has cautiously worded sub-section (1) of Section 143A not to make it mandatory in all cases. It is the discretion conferred, as the word used is “may”. Application of mind in exercise of discretion is discernible only in an order that contains reasons, and reasons can be found only if they are recorded in writing, and if reasons are recorded in writing, it is only then the order will be within the counters of law.

The Court further stated that the impugned action now alleged is that in terms of the order passed by the competent Court, the proceedings for attachment of the property are initiated by the complainant and the property of the petitioner is put to auction. Therefore, the consequences of such order are grave where the petitioner whose liability is yet to be determined will have to face grave hardship in the event of non-payment. It is therefore imperative for the learned Magistrates to pass appropriate orders which bear application of mind and record reasons as to why interim compensation is to be awarded in a given case.

The Court thus in the case at hand observed that there is not even a semblance of application of mind on the part of the Magistrate of Trial Court as the provision was misconstrued that in the event the accused does not plead guilty he becomes liable to pay 20% as interim compensation. This is not the purport of the Act.  What is the necessary is only application of mind and recording detailed reasons as to why such compensation is to be awarded in a given case.

The Court thus held “the order dated 10.01.2022 of attachment of property in Criminal Miscellaneous No.313 of 2021 stands quashed. Public auction notification dated 25.01.2022 in furtherance of the order dated 10.01.2022 also stands quashed.”

[Vijaya v. Shekharappa, 2022 SCC OnLine Kar 515, decided on 17-02-2022]


Arunima Bose, Editorial Assistant has reported this brief.

Case BriefsHigh Courts

Jammu & Kashmir and Ladakh High Court: Sanjeev Kumar, J., held that the sentence of fine under Section 138 of N.I.Act must be sufficient to adequately compensate the complainant. The Bench stated,

“The prime object of enacting Chapter XVII, of the N.I. Act is to control and discourage the menace of cheque bouncing in the course of commercial transactions and to encourage the culture of use of cheques and enhancing the credibility of the instrument.”

The Trial Court had convicted and punished the respondent under Section 138 of Negotiable Instruments Act, 1981, and held him liable to pay compensation of Rs.2.00 lakh to the petitioner. The instant appeal had been filed by the petitioner with the grievance that the respondent-accused should have also been awarded fine sufficient enough to meet the liability of the cheque issued by him which was dishonoured. The petitioner contended that the compensation awarded was only one fifth (1/5th) of the value of the cheque as the cheque issued by the respondent was for the amount of Rs. 10 lakh.

Observation and Analysis

Apparently, Section 138 of N. I. Act states that, the Criminal Court after convicting the accused, is empowered to impose punishment of imprisonment for a term, which may extend to two years, or fine which may extend to twice the amount of cheque, or both. The Bench observed that, the Trial Court is, thus, given the discretion to impose the sentence of imprisonment or fine or both.

The Supreme Court in Assistant Commissioner, Assessment-II v. Velliappa Textiles Ltd., 2003 11 SCC 405, had held that, “where the legislature has granted discretion to the court in the matter of sentencing, it is open to the court to use its discretion. Where, however, the legislature, for reasons of policy, has done away with this discretion, it is not open to the court to impose only a part of the sentence prescribed by the legislature, for that would amount re-writing the provisions of the statute.”

Similarly, in Damoder S. Prabhu v. Sayed Babalal H., (2010) 5 SCC 663, the Supreme Court had observed, “The object of bringing Section 138 into the statute was to inculcate faith in the efficacy of banking operations and credibility in transacting business on negotiable instruments. It was to enhance the acceptability of cheques in settlement of liabilities by making the drawer liable for penalties in case of bouncing of cheques due to insufficient arrangements made by the drawer, with adequate safeguards to prevent harassment of honest drawers.”

Reliance on the decision of the Supreme Court on the aforesaid case, the Bench observed that unlike other forms of crime, the punishment for commission of offence under Section 138 of N. I. Act is not a means of seeking retribution, but is more a means to ensure payment of money and, therefore, in respect of offence of dishonour of cheques, it is the compensatory aspect of the remedy which should be given priority over the punitive aspect. The Bench opined that the Criminal Court while convicting an accused for commission of offence under Section 138 of N.I. Act, cannot ignore the compensatory aspect of remedy and the compensatory aspect can only be given due regard if the sentence imposed is at least commensurate to the amount of cheque, so that the fine, once imposed, can be appropriated towards payment of compensation to the complainant by having resort to Section 357 of CrPC.

Opinion and Findings       

The Bench opined that it the Court should not resort to Section 357(3) of CrPC while imposing sentence under Section 138 of N.I. Act, rather the Criminal Court should bear in mind the laudable object of engrafting Chapter XVII containing Section 138 to 142 of NI Act and give priority to the compensatory aspect of remedy. The Bench stated,

“Indisputably, the Legislature has given discretion to the Magistrate to impose a sentence of fine which may extend to double the  amount of cheque and, therefore, the sentence of fine whenever imposed by the Criminal Court upon conviction of accused under Section 138 of N.I.Act must be sufficient enough to adequately compensate the complainant.”

Therefore, the amount of cheque and the date from which the amount under the cheque had become payable along with payment of reasonable interest may serve as good guide in this regard. To make it consistent and uniform, the Bench advised to impose a fine equivalent to the amount of cheque plus at least 6% interest per annum.

Decision

Considering that the Trial Court had awarded Rs.2.00 lakh, to be paid as compensation to the complainant, when admittedly the cheque amount was to the tune of Rs.10.00 lakhs, the Bench remanded back the matter to the trial Court for considering the imposition of sentence upon the respondent de novo in the light of legal position discussed and the observations made in the instant judgment. The appeal was allowed and the impugned order was quashed to the extent it awarded sentence to the accused. [Yasir Amin Khan v. Abdul Rashid Ganie, 2021 SCC OnLine J&K 934, decided on 22-11-2021]


Kamini Sharma, Editorial Assistant has reported this brief.


Appearance by:

For the Appellant: F.A.Wani, Advocate

For the Respondent: None

Case BriefsHigh Courts

Kerala High Court: Gopinath P., J., held that adding or omitting prefix like M/s, Mr And Mrs. while drawing the cheque is immaterial.

The appellant was the Managing Partner of a firm by name ‘Lakshmi Finance’, which was stated to be a partnership firm. An allegation was made with regard to commission of an offence under Section 138 of the Negotiable Instruments Act before the Trial Court, wherein the Trial Court had acquitted the respondent-accused on the sole ground that the subject cheque was drawn in favour of ‘Lakshmi Finance’ and not ‘M/s.Lakshmi Finance’, though it was seen from the partnership deed that the name of the firm was ‘M/s.Lakshmi Finance’.

 “The alphabets ‘M/s’ which is short form for ‘Messrs’ is normally a salutation intended to refer to a group of unincorporated persons, such as a partnership firm. The absence of such salutation while drawing the cheque by the respondent-accused cannot be a ground for the accused to be acquitted.”

The Bench explained, such a view is as good as saying that if the payee is not referred to in the cheque as ”Mr……..”, the accused had to be acquitted.

Accordingly, the appeal was allowed, the judgment of the Trial Court acquitting the respondent-accused was set aside and the case was restored to the file of the Trial Court for disposal in accordance with law. [N. Raveendran v. Shajahan, 2021 SCC OnLine Ker 3921, decided on 06-09-2021]


Kamini Sharma, Editorial Assistant has reported this brief.


Appearance by:

For the Appellant: Adv. P.V.Elias

For the Respondent: Adv. Renjith George, Public Prosecutor

Case BriefsSupreme Court

Supreme Court: In a bid to curb the worrying trend of parallel proceedings for complaints under Section 138 of the NI Act, the bench of Dr. DY Chandrachud*, Vikram Natha and BV Nagarathna, JJ has held that a complainant cannot pursue two parallel prosecutions for the same underlying transaction.

“Once a settlement agreement has been entered into by the parties, the proceedings in the original complaint cannot be sustained and a fresh cause of action accrues to the complainant under the terms of the settlement deed.”

What led to the decision?

In the case at hand, a set of cheques were dishonoured, leading to filing of the first complaint under Section 138 of the NI Act. The parties thereafter entered into a deed of compromise to settle the matter. While the first complaint was pending, the cheques issued pursuant to the compromise deed were dishonoured leading to the second complaint under Section 138 of the NI Act. Both proceedings were pending simultaneously and hence, the issue before the Supreme Court was to decide whether the complainant can be allowed to pursue both the cases or whether one of them must be quashed and the consequences resulting from such quashing.

Analysis

Ingredients of the offence under Section 138

(1) drawing of the cheque,

(2) presentation of the cheque to the bank,

(3) returning the cheque unpaid by the drawee bank,

(4) giving notice in writing to the drawer of the cheque demanding payment of the cheque amount,

 (5) failure of the drawer to make payment within 15 days of the receipt of the notice.

Remedies under Section 138 of the NI Act

The effect of an offence under Section 138 of the NI Act is limited to two private parties involved in a commercial transaction. However, the intent of the legislature in providing a criminal sanction for dishonour of cheques is to ensure the credibility of transactions involving negotiable instruments.

Given that the primary purpose of Section 138 of the NI Act is to ensure compensation to the complainant, the NI Act also allows for parties to enter into a compromise, both during the pendency of the complaint and even after the conviction of the accused.

Worrying trend of parallel proceedings for complaints under Section 138 of the NI Act

“The pendency of court proceedings under Section 138 of the NI Act and the multiplicity of complaints in which a cause of action arising from one transaction is litigated has dampened the ease of doing business in India, impacted business sentiments and hindered investments from investors.”

The Court noticed that the introduction of a criminal remedy has given rise to a worrying trend where cases under Section 138 of the NI Act are disproportionately burdening the criminal justice system

Hence, under the shadow of Section 138 of the NI Act, parties are encouraged to settle the dispute resulting in ultimate closure of the case rather than continuing with a protracted litigation before the court. This is beneficial for the complainant as it results in early recovery of money; alteration of the terms of the contract for higher compensation and avoidance of litigation. Equally, the accused is benefitted as it leads to avoidance of a conviction and sentence or payment of a fine. It also leads to unburdening of the judicial system, which has a huge pendency of complaints filed under Section 138 of the NI Act.

Whether once the settlement has been entered into, the complainant can be allowed to pursue the original complaint under Section 138 of the NI Act?

Holding that a complainant cannot pursue two parallel prosecutions for the same underlying transaction, the Court said that allowing the complainant to pursue parallel proceedings, one resulting from the original complaint and the second emanating from the terms of the settlement would make the settlement and issuance of fresh cheques or any other partial payment made towards the original liability meaningless.

The Court explained that a contrary interpretation, which allows for the complainant to pursue both the original complaint and the consequences arising out of the settlement agreement, would lead to contradictory results.

First, it would allow for the accused to be prosecuted and undergo trial for two different complaints, which in its essence arise out of one underlying legal liability.

Second, the accused would then face criminal liability for not just the violation of the original agreement of the transaction which had resulted in issuance of the first set of cheques, but also the cheques issued pursuant to the compromise deed.

Third, instead of reducing litigation and ensuring faster recovery of money, it would increase the burden of the criminal justice system where judicial time is being spent on adjudicating an offence which is essentially in the nature of a civil wrong affecting private parties.

A complainant enters into a settlement with open eyes and undertakes the risk of the accused failing to honour the cheques issued pursuant to the settlement, based on certain benefits that the settlement agreement postulates. The benefits may include – higher compensation, faster recovery of money, uncertainty of trial and strength of the complaint, among others.

Hence,

“Once parties have voluntarily entered into such an agreement and agree to abide by the consequences of non-compliance of the settlement agreement, they cannot be allowed to reverse the effects of the agreement by pursuing both the original complaint and the subsequent complaint arising from such non-compliance. The settlement agreement subsumes the original complaint.”

The Court, hence, held that non-compliance of the terms of the settlement agreement or dishonour of cheques issued subsequent to it, would then give rise to a fresh cause of action attracting liability under Section 138 of the NI Act and other remedies under civil law and criminal law.

[Gimpex Private Limited v. Manoj Goel, 2021 SCC OnLine SC 925, decided on 08.10.2021]

__________________________________________________________________________________________________________________

Counsels:
For appellant: Senior Advocate V Giri and Advocate Liz Mathew

For respondent: Senior Advocate Jayant Bhushan


*Judgment by: Justice Dr. DY Chandrachud

Know Thy Judge| Justice Dr. DY Chandrachud

Case BriefsHigh Courts

Allahabad High Court: Vivek Varma, J., refused to quash a complaint case filed under Section 138 NI Act and directed the trial court to expedite the hearing.

Instant application was filed to quash the proceedings of a Complaint Case under Section 138 of Negotiable Instruments Act, 1881pending in the Court of Metropolitan Magistrate.

Applicant’s Counsel submitted that the cheque in question was not issued against any existing debt or liability and the date of service of notice was not disclosed in the complaint. It was added that until the date of service of notice is not disclosed, the cause of action to initiate the prosecution under Section 138 NI Act will not arise.

Though the AGA appearing for the State submitted that the disclosure of the date of service of notice is not mandatory. The said is a matter of evidence and can be seen during the trial.

Analysis, Law and Decision

Bench first referred to Section 138 of NI Act and further, the decision of Supreme Court in C.C. Alavi Haji v. Palapetty Muhammed, (2007) 6 SCC 555 wherein presumption under Section 144 of the Evidence Act and Section 27 of the General Clauses Act was enunciated.

The above case was followed in the Supreme Court decision of Ajeet Seeds Limited v. K. Gopala Krishnaiah, (2014) 12 SCC 685, wherein it was held that the absence of averments in the complaint about service of notice upon the accused is the matter of evidence.

High Court in view of the above settled legal position stated that the complaint cannot be thrown at the threshold even if it does not make a specific averment with regard to the service of notice on the drawer on a given date.

Though the Bench added that the complaint must contain basic facts regarding the mode and manner of issuance of notice to the drawer of the cheque.

“…factum of disputed service of notice requires adjudication on the basis of evidence. The same can only be done and appreciated by the trial court and not by this Court under the jurisdiction conferred by Section 482 Cr.P.C.”

Burden of proving that the cheque was issued for debt or liability will also be upon the applicant and can be gone into by the Trial Court.

Pre-trial cannot be held before the actual trial begins. At the stage of summoning, the Magistrate has only to see whether a prime facie case is made out or not.

Therefore, in view of the Supreme court decision and the reasons stated above, the present application was dismissed.

The complaint case had been pending since 2007 and the as per Negotiable Instruments Act the proceedings under Section 138 NI Act ought to be concluded within 6 months, hence Court directed the lower court to expedite the hearing. [Ganesh Babu Gupta v. State of U.P.,  2021 SCC OnLine All 420, decided on 7-06-2021]

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of RF Nariman*, Navin Sinha and KM Joseph, JJ has, analysing various provisions under the Negotiable Instruments Act, the Court concluded that the proceedings under Section 138 are “quasi-criminal” in nature.

The Court held that

“a Section 138/141 proceeding against a corporate debtor is covered by Section 14(1)(a) of the IBC.”

In a 120-pages long verdict, the Supreme Court tackled the following issues to reach at the aforementioned conclusion:

OBJECT AND INTERPRETATION OF SECTION 14 OF THE IBC

The expression “institution of suits or continuation of pending suits” is to be read as one category, and the disjunctive “or” before the word “proceedings” would make it clear that proceedings against the corporate debtor would be a separate category.

“What throws light on the width of the expression “proceedings” is the expression “any judgment, decree or order” and “any court of law, tribunal, arbitration panel or other authority”. Since criminal proceedings under the Code of Criminal Procedure, 1973 are conducted before the courts mentioned in Section 6, CrPC, it is clear that a Section 138 proceeding being conducted before a Magistrate would certainly be a proceeding in a court of law in respect of a transaction which relates to a debt owed by the corporate debtor.”

A quasi-criminal proceeding which would result in the assets of the corporate debtor being depleted as a result of having to pay compensation which can amount to twice the amount of the cheque that has bounced would directly impact the corporate insolvency resolution process in the same manner as the institution, continuation, or execution of a decree in such suit in a civil court for the amount of debt or other liability.

“Judged from the point of view of this objective, it is impossible to discern any difference between the impact of a suit and a Section 138 proceeding, insofar as the corporate debtor is concerned, on its getting the necessary breathing space to get back on its feet during the corporate insolvency resolution process.”

Hence, the width of the expression “proceedings” cannot be cut down so as to make such proceedings analogous to civil suits.

THE INTERPLAY BETWEEN SECTION 14 AND SECTION 32A OF THE IBC

“A section which has been introduced by an amendment into an Act with its focus on cesser of liability for offences committed by the corporate debtor prior to the commencement of the corporate insolvency resolution process cannot be so construed so as to limit, by a sidewind as it were, the moratorium provision contained in Section 14, with which it is not at all concerned.”

If the expression “prosecution” in the first proviso of Section 32A(1) refers to criminal proceedings properly so-called either through the medium of a First Information Report or complaint filed by an investigating authority or complaint and not to quasi-criminal proceedings that are instituted under Sections 138/141 of the Negotiable Instruments Act against the corporate debtor, the object of Section 14(1) of the IBC gets subserved, as does the object of Section 32A, which does away with criminal prosecutions in all cases against the corporate debtor, thus absolving the corporate debtor from the same after a new management comes in.

NATURE OF PROCEEDINGS UNDER CHAPTER XVII OF THE NEGOTIABLE INSTRUMENTS ACT

“Section 138 contains within it the ingredients of the offence made out. The deeming provision is important in that the legislature is cognizant of the fact that what is otherwise a civil liability is now also deemed to be an offence, since this liability is made punishable by law.”

It is important to note that the transaction spoken of is a commercial transaction between two parties which involves payment of money for a debt or liability. The explanation to Section 138 makes it clear that such debt or other liability means a legally enforceable debt or other liability. Thus, a debt or other liability barred by the law of limitation would be outside the scope of Section 138. This, coupled with fine that may extend to twice the amount of the cheque that is payable as compensation to the aggrieved party to cover both the amount of the cheque and the interest and costs thereupon, would show that it is really a hybrid provision to enforce payment under a bounced cheque if it is otherwise enforceable in civil law.

Further, as the proviso gives an opportunity to the drawer of the cheque, stating that the drawer must fail to make payment of the amount within 15 days of the receipt of a notice, it becomes clear that the real object of the provision is not to penalise the wrongdoer for an offence that is already made out, but to compensate the victim.

Under Section 139, a presumption is raised that the holder of a cheque received the cheque for the discharge, in whole or in part, of any debt or other liability. To rebut this presumption, facts must be adduced which, on a preponderance of probability (not beyond reasonable doubt as in the case of criminal offences), must then be proved.

Section 140 states that it shall not be a defence in a prosecution for an offence under Section 138 that the drawer had no reason to believe when he issued the cheque that the cheque may be dishonoured on presentment for the reasons stated in that Section, thus making it clear that strict liability will attach, mens rea being no ingredient of the offence.

Section 141 makes Directors and other persons statutorily liable, provided the ingredients of the section are met. Interestingly, for the purposes of this Section, explanation (a) defines “company” as meaning any body corporate and includes a firm or other association of individuals.

A cursory reading of Section 142 makes clear that the procedure under the CrPC has been departed from. First and foremost, no court is to take cognizance of an offence punishable under Section 138 except on a complaint made in writing by the payee or the holder in due course of the cheque – the victim. Further, the language of Section 142(1) (b) would again show the hybrid nature of these provisions inasmuch as a complaint must be made within one month of the date on which the “cause of action” under clause (c) of the proviso to Section 138 arises.

“The expression “cause of action” is a foreigner to criminal jurisprudence, and would apply only in civil cases to recover money. Chapter XIII of the CrPC, consisting of Sections 177 to 189, is a chapter dealing with the jurisdiction of the criminal courts in inquiries and trials. When the jurisdiction of a criminal court is spoken of by these Sections, the expression “cause of action” is conspicuous by its absence.”

Under Section 143, it is lawful for a Magistrate to pass a sentence of imprisonment for a term not exceeding one year and a fine exceeding INR 5,000/- summarily. Hence,

“… the payment of compensation is at the heart of the provision in that a fine exceeding INR 5000/-, the sky being the limit, can be imposed by way of a summary trial which, after application of Section 357 of the CrPC, results in compensating the victim up to twice the amount of the bounced cheque.”

Under Section 144, the mode of service of summons is done as in civil cases, eschewing the mode contained in Sections 62 to 64 of the CrPC. Likewise, under Section 145, evidence is to be given by the complainant on affidavit, as it is given in civil proceedings, notwithstanding anything contained in the CrPC. Most importantly, by Section 147, offences under this Act are compoundable without any intervention of the court, as is required by Section 320(2) of the CrPC.

CONCLUSION

“The gravamen of a proceeding under Section 138, though couched in language making the act complained of an offence, is really in order to get back through a summary proceeding, the amount contained in the dishonoured cheque together with interest and costs, expeditiously and cheaply.”

The Court, hence, concluded that a quasi-criminal proceeding that is contained in Chapter XVII of the Negotiable Instruments Act would, given the object and context of Section 14 of the IBC, amount to a “proceeding” within the meaning of Section 14(1)(a), the moratorium therefore attaching to such proceeding.

[P. Mohanraj v. Shah Brother Ispat Pvt. Ltd., 2021 SCC OnLine SC 152, decided on 01.03.2021]


*Judgment by: Justice RF Nariman

Know Thy Judge| Justice Rohinton F. Nariman

Appearances before the Court by:

For Appellants: Senior Advocate Jayanth Muth Raj

For Respondent: Advocate Jayant Mehta

Case BriefsSupreme Court

Supreme Court: The 3-Judge Bench comprising of N.V. Ramana, Surya Kant* and Aniruddha Bose, JJ., upheld the judgement of High Court of Judicature at Madras, whereby the order of acquittal of the Judicial Magistrate was reversed and the appellants had been convicted under Section 138 of the NIA, 1881. The Bench expressed,

“Once the appellant 2 had admitted his signatures on the cheque and the Deed, the trial Court ought to have presumed that the cheque was issued as consideration for a legally enforceable debt.”

Background

The respondent was the proprietor of a garment company named and styled as ‘Growell International’, which along with the appellant 1 was engaged in a business arrangement, whereby they agreed to jointly export garments to France. Certain issues arose regarding delays in shipment and payment from the buyer, due to which, the appellants had to pay the respondent a sum of Rs 11.20 lakhs. To that end, the appellant 2 had issued a cheque on behalf of appellant 1 bearing No. 897993 dated 07-11-2000 in favour of the respondent and also executed a Deed of Undertaking wherein appellant 2 personally undertook to pay the respondent in lieu of the initial expenditure incurred by the latter.

The respondent presented the said cheque to the bank on 29-12-2000 for collection but the cheque was dishonoured due to insufficient funds in the account of appellants. Pursuant to which the respondent issued a notice asking the appellants to pay the amount within 15 days.

The appellants in their reply denied their liability and claimed that blank cheques and signed blank stamp papers were issued to help the respondent in some debt recovery proceedings, and not because of any legally enforceable debt. It was contended by the appellants that the said documents were misused by the respondent to forge the Deed of Undertaking and the High Court had committed patent illegality and exceeded its jurisdiction in reversing the acquittal.

Analysis

The Bench noticed that the Trial Court had completely overlooked the provisions and failed to appreciate the statutory presumption drawn under Section 118 and Section 139 of NI Act. The Statute mandates that once the signature(s) of an accused on the cheque/negotiable instrument are established, then these ‘reverse onus’ clauses become operative. Similarly,

“Mere bald denial by the appellants regarding genuineness of the Deed of Undertaking dated 07-11-2000, despite admitting the signatures, did not cast any doubt on the genuineness of the said document.”

In the light of Rohtas v. State of Haryana, (2019) 10 SCC 554, the Bench evaluated its own limitations and observed that the Court under Article 136 of the Constitution did not encompass the re-appreciation of entirety of record merely on the premise that the High Court had convicted the appellants for the first time in exercise of its appellate jurisdiction.

The Bench, while citing CK Dasegowda and Others v. State of Karnataka, (2014) 13 SCC 119, expressed,

“It is true that the High Court would not reverse an order of acquittal merely on formation of an opinion different than that of the trial Court. It is also trite in law that the High Court ought to have compelling reasons to tinker with an order of acquittal and no such interference would be warranted when there were to be two possible conclusions.”

Noticing that the defence raised by the appellants did not inspire confidence or meet the standard of “preponderance of probability” the Bench stated that in the absence of any other relevant material, the High Court did not err in discarding the appellants’ defence and upholding the onus imposed upon them in terms of Section 118 and Section 139 of the NIA.

Decision

It was held that though the provisions of NI Act envision a single window for criminal liability for dishonour of cheque as well as civil liability for realisation of the cheque amount, since the appellant had accepted the High Court’s verdict; he was entitled to receive only the cheque amount of Rs.11.20 lakhs.

Hence, the impugned order was upheld. Considering the appellants volunteered and thereafter deposited the cheque amount with the Registry of the Court, the Bench had taken a lenient view and held that the appellants should not be required to undergo three months imprisonment as awarded by the High Court.

[Kalamani Tex v. P. Balasubramanian, 2021 SCC OnLine SC 75 , decided on 10-02-2021]


Kamini Sharma. Editorial Assistant has put this report together 

*Judgment by: Justice Surya Kant

Know Thy Judge | Justice Surya Kant

Case BriefsHigh Courts

Delhi High Court: Subramonium Prasad, J., addressed a matter wherein it was reiterated that the initial burden of proving the burden of the non-existence of debt is on the accused under Section 118 of Negotiable Instruments Act, 1881.

The instant revision petition was filed against the order passed dismissing the appeal and affirming the Metropolitan Magistrate’s order convicting the petitioner for offences punishable under Section 138 of Negotiable Instruments Act, 1881.

Petitioner has also challenged the order wherein the petitioner has been sentenced to undergo imprisonment for a period of two months and also directed the petitioner to pay an amount of Rs 13 lakhs as fine payable as compensation to the respondent as per the provision of Section 143 (1) of NI Act read with Section 357 (1)(3) of CrPC.

Facts that lead to the case

Respondent financed a bus for the petitioner by giving a loan and in discharge of the liability, petitioner handed over the cheques in favour of the respondent. When the said cheques were deposited they were returned as unpaid/dishonored for the reason ‘Funds Insufficient’.

Petitioner submitted that the vehicle was handed over to the respondent company for getting the vehicle converted to CNG but the said vehicle was never returned to the petitioner nor the accounts related to the hire purchase were settled. In fact, the blank cheques given to the respondent earlier were misused.

Though Metropolitan magistrate found the petitioner’s deposition to be inconsistent and found that the bus was already sold by the petitioner.

Metropolitan Magistrate, therefore, held that the accused/petitioner was not been able to rebut the presumption that the cheques had been paid for the discharge of any liability and hence convicted under Section 138 NI Act.

Analysis, Law and Decision

Section 118 of the NI Act raises a presumption that a cheque is issued for consideration until the contrary is proved. It is well settled that the initial burden in this regard lies on the accused to prove the non-existence of debt by bringing on record such facts and circumstances which would lead the Court to believe the non-existence of debt either by direct evidence or by preponderance of probabilities.

In the instant matter, other than mere ipsi dixit of the petitioner there was no debt due and payable nothing was on record to show that the cheques were not issued for discharge of liability for the bus.

Bench stated that the purpose of introducing Section 138 of the NI Act was to bring sanctity in commercial transactions.

Further, the Court noted that the lower courts on perusal of records came to the conclusion that the cheques were given in discharge of the debt.

While expressing that the scope of revision petition under Sections 397/401 CrPC read with Section 482 CrPC is extremely narrow Court referred the following Supreme Court decisions:

State v. Manimaran, (2019) 13 670

State of Haryana v. Rajmal, (2011) 14 SCC 326

In view of the above discussion, Bench did not find any that required the interference in the lower court’s judgment.

Further, the Court added that the respondent did not file the books of accounts was not fatal to the case of the respondent. It was open to the petitioner to produce his books of accounts to rebut the presumption and bring out a prima facie case that there was no debt due and payable on the date the cheques were dishonoured.

Petitioner failed to show as to how there was no subsisting debt on the date when the cheques were dishonoured due to insufficiency of funds.

In view of the above discussion, the revision petition was dismissed. [G.D. Kataria v. AVL Leasing & Financing Ltd., 2020 SCC OnLine Del 1056, decided on 03-02-2021]


Advocates for the parties:

Petitioner: Medhanshu Tripathi, Advocate

Respondent: Anuj Soni, Advocate

Case BriefsHigh Courts

Punjab and Haryana High Court: Gurvinder Singh Gill, J., observed that,

Right to appeal against conviction is an invaluable statutory right vested upon a convict by Criminal Procedure Code which cannot be allowed to be defeated by imposing any condition for availing such right.

“..depriving a convict of his right to appeal by imposing any pre-requisite for availing his statutory right to challenge conviction in a higher Court would amount to depriving his liberty without adhering to the established procedure of law.”

Petitioners were arrayed as accused in the complaint filed by the respondent under Section 138 of Negotiable Instruments Act, 1881.

It was alleged that the cheques drawn by the accused upon their presentation in the bank by the complainant for their encashment were dishonoured.

In light of the above background, accused were tried by the Judicial Magistrate and directed to pay compensation.

Accused, on being aggrieved by the above decision preferred appeals before the Sessions Court, wherein at the time of admission of appeals, impugned orders dated 28-2-2020 were passed, wherein following was stated:

“Criminal Appeal received by entrustment. As there are fairly arguable points involved in the adjudication of the present appeal, hence, the present appeal is admitted for hearing, subject to just exceptions and to deposit of 20% of the compensation amount in view of latest amendment in Section 148 of Negotiable Instruments Act (applicable w.e.f. 01.09.2018), within one month from today. It is registered as Criminal Appeal. Now notice of this appeal be issued to the respondent through ordinary process as well as speed post on furnishing of speed post charges and copies of grounds of appeal within a week for 02-07-2020. Trial Court Record be also called for that date.”

Counsel representing the complainant argued that the lower Appellate Court having passed the orders in question in exercise of jurisdiction under statutory provisions of Section 148 of the Act, the same cannot be called to question.

Analysis, Law and Decision

The language of Section 148 of the NI Act would show that the amended provisions vest the Appellate Court with a discretion to direct deposit of an amount not less than 20% of the compensation amount as awarded by the trial Court. Although the word ‘may’ has been used in the Section but the Supreme Court in Surinder Singh Deswal v. Virender Gandhi, (2019) 11 SCC 341 has interpreted the said provisions to mean that issuance of such a direction is more in the nature of a mandate.

In view of the above-stated Supreme Court decision, power of Appellate Court, though discretionary is supposed to be a ‘rule’ and said discretion should be exercised in all the cases unless there are some exceptional circumstances

In the instant case, there were no exceptional circumstances before the lower Appellate Court so as to justify non-deposit of an amount as provided under Section 148 of the Act.

Section 148(2) of the Act would show that it is provided in unambiguous terms that the amount is required to be deposited within a period of 60 days which may further be extended by another 30 days.

In the instant case, lower Appellate Court having granted only 1 month’s period for depositing the amount, the same is contrary to the above-stated provisions.

Right of Appeal

Section 374 CrPC does not prescribe any condition for admission of an appeal.

Provisions of the statute which vests a convict with a valuable right to challenge his conviction are not circumscribed by any conditions.

Nor does any provision of the Negotiable Instruments Act, 1881 refer to any pre-condition for availing a valuable right of the first appeal.

Further, the Bench expressed that Section 148 of the Act just vests the Appellate Court with the power to direct the appellant to deposit an amount not less than 20% of the compensation amount but under no circumstances the same can be interpreted to be a condition pre-requisite for availing the right of appeal.

Imposition of any condition at the time of suspending of sentence may be a different matter and the trial Court may in its wisdom, impose such a condition failing which the order suspending sentence may be vacated.

Supreme Court in Babu Rajirao Shinde v. State of Maharashtra, (1971) 3 SCC 337, observed that a convicted person must be held to be at least entitled to one appeal as a substantial right.

High Court also made another significant observation:

Even though the Negotiable Instruments Act, 1881 is a special Act and could override provisions of Cr.P.C., but there is no such specific provision in the Act which could be interpreted to mean that availing of right to appeal by a person convicted for an offence under the Act, has been made subject to some conditions.

While parting with the decision, Court held that:

(i) The condition made in the impugned orders wherein the admission of appeal has been made subject to deposit of 20% of the compensation amount is set aside and it is ordered that the appeals shall stand admitted before the lower Appellate Court. The petitioners are, however, directed to deposit an amount equivalent to 20% of the amount of compensation awarded by the trial Court within 60 days from today.

(ii)  In case the aforesaid amount is deposited within 60 days from today, the bail already granted vide order dated 28.2.2020 by lower Appellate Court shall continue subject to any such fresh conditions as may be imposed by lower Appellate Court.

(iii)  In case bail of any of the petitioner has been cancelled on account of non-deposit of the amount or has already been taken into custody, he shall be released forthwith on bail subject to any such conditions as may be imposed by the lower Appellate Court. He shall, however, deposit the amount of 20% within 60 days from today.

(iv) In case of failure to deposit the amount in question within a period of 60 days from today, it shall be open to the lower Appellate Court to cancel bail and to hear the appeal on merits, provided, however, subject to any such general directions issued by the High Court in the matter of hearing of cases, having regard to the present circumstances of spread of pandemic COVID-19.[Sudarshan Kumar v. Manish Manchanda, 2020 SCC OnLine P&H 2321, decided on 15-12-2020]


Advocates who appeared before the matter:

Vaibhav Sehgal, Advocate, counsel for the petitioner(s).

Nitin Thatai, Advocate for the respondent (s)

High Court Round UpLegal RoundUp

And, that’s a wrap!

Here’s the list of our coverage on Negotiable Instruments Act in the year 2020.

 [Allahabad High Court]

All HC | Can a complaint filed in light of S. 138 NI Act be dismissed on ground of one day delay? Read Court’s reasoned order

[Pankaj Sharma v. State of U.P., 2020 SCC OnLine All 1339, decided on 22-09-2020]

All HC | Principle contained in S. 141 of NI Act is not applicable to a sole-proprietary concern, firm need not be arraigned as an accused while making a claim for recovery under S. 138 of the NI Act

[Dhirendra Singh v. State of U.P., 2020 SCC OnLine All 1130, decided on 13-10-2020]

All HC | Once the intention of the party is clear that he does not wish to make payment, should complainant wait for 15 days to file a complaint for dishonour of cheque? HC answers

[Ravi Dixit v. State of U.P., 2020 SCC OnLine All 1056, decided on 23-09-2020]


[Bombay High Court]

Bom HC | Does NI Act authorises a complainant to fill an incomplete cheque? Court discusses while reversing acquittal of accused under S. 138 NI Act

[Kiran Rameshlal Bhandari v. Narayan Purushottam Sarada, 2020 SCC OnLine Bom 3562, decided on 07-12-2020]

Bom HC | Appeal filed against conviction under S. 138 NI Act cannot be dismissed for non-payment of fine without going into merits of appeal

[Adesh Prakashchand Jain v. Harish Punamchand Une, 2020 SCC OnLine Bom 96, decided on 08-01-2020]

Bom HC | S. 139 NI Act imposes evidentiary burden and not a persuasive burden; acquittal upheld where complainant failed to prove capacity to give loan

[Tasneem Murshedkar Mazhar v. Ramesh, 2020 SCC OnLine Bom 20, decided on 02-01-2020]


[Delhi High Court]

Del HC | Can a director who has resigned from company be held liable for cheques subsequently issued and dishonoured? HC explains in light of S. 141 NI Act

[Alibaba Nabibasha v. Small Farmers Agri-Business Consortium, 2020 SCC OnLine Del 1250, decided on 23-09-2020]

Del HC | Proceedings under S. 138 NI Act quashed against Independent Non-executive Directors not involved in day-to-day affairs of Company

[Sunita Palta v. Kit Marketing (P) Ltd., Crl. MC No. 1410 of 2018, decided on 03-03-2020]

Del HC | Ss. 143-147 NI Act lay down Special Code for trial, recourse to S. 482 CrPC as a substitute for initiating second revision petition denied

[Tathagat Exports (P) Ltd. v. PEC Ltd., 2020 SCC OnLine Del 405, decided on 20-01-2020]


[Himachal Pradesh High Court]

HP HC | Legislative intent of NI Act, 1881 is not to send the people to suffer incarceration but to execute recovery of cheque amount by showing teeth of penalty loss; conviction set aside

[Gaurav Sharma v. Ishwari Nand, 2020 SCC OnLine HP 2464, decided on 13-11-2020]

HP HC | Whether the trial court can exercise any discretion while entertaining an application under S.145 of the NI Act; HC elucidates upon procedural nuances

[Vikas Sharma v. Vishant Bali,  2020 SCC OnLine HP 2876, decided on 08-12-2020]

HP HC | While exercising power under S. 147 of NI Act the Court can proceed to compound the offence even after recording of conviction

[Satish Kumar v. Rahul Kumar, 2020 SCC OnLine HP 338, decided by 03-03-2020]


[Jharkhand High Court]

 Jhar HC | Object of NI Act is primarily compensatory; Court can discharge accused on full payment and amicable settlement

[Alok Kumar v. State of Jharkhand, Cr. Revision No. 694 of 2019, decided on 06-03 2020]


[Kerala High Court]

[Negotiable Instruments Act] Ker HC | What determines commencement of period of presentation is date of cheque and not the date of delivery of cheque

[Subanamma Ninan v. George Veeran, 2020 SCC OnLine Ker 4151, decided on 18-09-2020]


[Karnataka High Court]

 Kar HC | In a case where both the complainant and the accused remained continuously absent, Court ought to have “dismissed the complaint for non-prosecution under S. 256 CrPC and not on merits”

[Karage Gowda v. S. Nagaraj, 2020 SCC OnLine Kar 2012, decided on 11-12-2020]

Kar HC | If the complainant produces evidence regarding the transaction as well as dishonour of cheque, is it still necessary to examine the banker to prove the endorsement issued by him? HC decides

[M. Narayanaswamy v. Nagaraj N.S., 2020 SCC OnLine Kar 2013, decided on 11-12-2020]

Kar HC | No legal basis for Family Courts insisting on personal presence of petitioners at the time of filing cases; Presence of complainant while filing S. 138 NI Act case not necessary

[High Court of Karnataka v. State of Karnataka, 2020 SCC OnLine Kar 543 , decided on 03-06-2020]


[Madras High Court]

Madras HC | Can a ‘Non-Executive Director’ who is not responsible for day-to-day affairs of company be made vicariously liable for offence committed by the company? Court’s interpretation in light of S. 141 NI Act

[Vijaya Arun v. New Link Overseas Finance Ltd., Crl. OP Nos. 5, 8 & 11 of 2020, decided on 18-08-2020]

[Malafide Litigation] Madras HC | Proceedings under S. 420 IPC quashed for being counterblast to complaint instituted under S. 138 NI Act

[M. Chandrasekar v. R. Rajamani, 2020 SCC OnLine Mad 4777, decided on 24-08-2020]


[Madhya Pradesh High Court]

[Dishonour of Cheque] MP HC | Director/MD/JD/other officers and employees of a company can not be prosecuted under S. 138 of NI Act unless the company is impleaded as an accused

[Bhupendra Suryawanshi v. Sai Traders, 2020 SCC OnLine MP 1277, decided on 09-06-2020]


[Punjab and Haryana High Court]

[S. 138 NI Act] P&H HC | Do sympathetic consideration have any role to play in the matter of sentencing? Court discusses

[Rakesh Kumar v. Jasbir Singh, 2020 SCC OnLine P&H 1197, decided on 11-08-2020]


[Tripura High Court]

Tri HC | What is the purpose of a serving a ‘Statutory Notice’ under Negotiable Instruments Act? Detailed analysis of significance of ‘Statutory Presumption’

[Nitai Majumder v. Tanmoy Krishna Das, 2020 SCC OnLine Tri 537, decided on 17-11-2020]


Also Read:

2020 Wrap Up — Flashback of Stories on Consumer Cases

2020 Wrap-Up — Family Law & Allied Provisions

Case BriefsHigh Courts

Karnataka High Court: John Michael Cunha J., allowed the appeal and set aside the impugned judgment.

The case involves default under Section 138 Negotiable Instruments Act, 1881 wherein after the complaint was made summons were issued to the respondent. The complainant examined himself and produced 8 documents pertaining to his claim as evidence. However, during the trial accused remained continuously absent. Hence the Trial Court dismissed the complaint stating that further cross-examination of PW1 was taken as “not tendered for further cross-examination”. When the complainant failed to tender himself for cross-examination, the only course open for the court was to eschew the entire evidence from record and as a result no evidence would have been available before the Trial Court to render a finding on merits of the case, But unfortunately the Trial Court proceeded to discuss the matter on merits and held that the complainant has failed to prove the existence of the debt or other liability and hence acquitted the accused. Aggrieved by the same, present appeal was filed.

Counsel for the complainant submitted that such procedure is legally untenable and cannot be approved.

The Court observed that when no legal evidence was available on record, the Trial Court could have passed an order on merits and rejected the claim of the complainant. It was further observed that the order sheet clearly indicates that not only the accused but also the complainant remained continuously absent.

Thus, the Court held that the trial Court ought to have dismissed the complaint about non-prosecution under Section 256 of the Criminal Procedure Code and not on merits. It further held that complainant is equally responsible for keeping the matter pending for more than 4 years from 2016 onwards.

In view of the above, the appeal was allowed and the impugned order was set aside. [Karage Gowda v. S. Nagaraj, 2020 SCC OnLine Kar 2012, decided on 11-12-2020]


Arunima Bose, Editorial Assistant has put this story together

Case BriefsHigh Courts

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

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

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

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

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

Facts

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

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

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

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

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

Misutilization of the Cheque

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

Statutory Presumption

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

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

Section 138 NI Act requires proof of the essential ingredients:

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

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

Question for consideration:

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

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

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

Decision

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

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

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

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

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

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

Case BriefsHigh Courts

Himachal Pradesh High Court: Anoop Chitkara, J., setting aside the conviction against the petitioner, discussed the effect of compromise between the parties in cases attracting Section 138 of Negotiable Instruments Act, 1881 and the cases of compounding of offence under the same.

Background

The petitioner stands convicted under Section 138 of the Negotiable Instruments Act, 1881, vide order dated 26-07-2018 by the Additional Chief Judicial Magistrate, Shimla. Application under Section 389 Code of Criminal Procedure, 1973, was made by the petitioner before the Sessions Judge, which stands dismissed in default by order dated 07-01-2019. The petition hereby was moved invoking Inherent powers of the High Court under Section 482 Code of Criminal Procedure, 1973, against the said conviction. 

Observations

The Court reiterating the objective of the Negotiable Instruments Act, 1881, said, “The jurisprudence behind the N.I. Act is that the business transactions are honoured. The legislative intention is not to send the people to suffer incarceration because their cheque was bounced. These proceedings are simply to execute the recovery of cheque amount by showing teeth of penalty loss.”  Considering the peculiar facts of the present case and the power of Court to interfere in matters like such, the Court observed, “This Court has inherent powers under Section 482 of the Code of Criminal Procedure which are further supported by Section 147 of the N.I. Act to interfere in this kind of matter where parties have paid the entire money and where the complainant does not object to clear all the proceedings.” Reliance was placed on Shakuntala Sawhney v. Kaushalya Sawhney, (1980) 1 SCC 63, wherein the Supreme Court held, “The finest hour of Justice arise propitiously when parties, despite falling apart, bury the hatchet and weave a sense of fellowship or reunion.”  With respect to the compromise made and its effect over the FIR, the Court said, “(…) It is a fit case where the inherent jurisdiction of the High Court under Section 482 of the Code of Criminal Procedure read with 147 of Negotiable Instruments Act, is invoked to compound the offence and consequently to quash the above-mentioned FIR and consequent proceedings” The Court further reproduced the guidelines as laid down by Damodar S. Prabhu v. Sayed Babalal H., (2010) 5 SCC 663, with respect to the compounding of offences under the Negotiable Instruments Act, 1881.

Decision

While setting aside the impugned order of conviction by the Additional Chief Judicial Magistrate, the Court directed the petitioner to be released from the prison with immediate effect.[Gaurav Sharma v. Ishwari Nand, 2020 SCC OnLine HP 2464, decided on 13-11-2020]


Sakshi Shukla, Editorial Assistant has up this story together

Case BriefsHigh Courts

Allahabad High Court: While deciding a petition filed under Article 227 of the Constitution of India, Suresh Kumar Gupta, J., dismissed the same and declined to interfere in the judgment delivered by Sessions Court.

The present petition has been filed by the petitioner to set aside the impugned orders dated 31-10-2018 passed by Additional Court No. 3, Agra in Complaint No. 1500 of 2011 (Nepal Singh v. Dhirendra Singh) under Section 138 of Negotiable Instruments Act, 1881(Hereinafter referred as N.I. Act) and the order dated 6-02-2020 passed by Additional Sessions Judge, Agra in Criminal Revision No. 552 of 2018 (Dhirendra v. State of U.P. ) and to quash the summoning order dated 28-3-2012 as well as an entire proceeding of Complaint Case No. 1500 of 2011 pending in the Additional Court No. 3, Agra.

The factual matrix in the instant case is such that the present petitioner borrowed Rs 1,00,000 from respondent 2 and handed over cheques bearing Nos. 850213 & 850214 for repayment of the borrowed amount. However, the cheques were dishonoured by the bank due to insufficient amount in the account subsequent to which respondent 2 served a notice to the petitioner on 18-10-2011. Later, on 08-11-2011, respondent 2 filed a complaint case no. 1500 of 2011 (Nepal Singh v. Dhirendra Singh) under Section 138 of N.I. Act against the petitioner in the trial court. The trial court vide its order dated 28-3-2012 has taken cognizance and summoned the petitioner.

Counsel for the petitioner, Deepak Kumar Kulshrestha has relied on Section 138 of the N.I. Act, submitting that the complainant/respondent is incompetent to lodge the prosecution as the cheques were issued by the firm Rashmi Arosole & Chemicals and the petitioner is the proprietor of this firm but the firm is not arraigned as an accused. He relied on the judgments delivered in the cases of Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661 and Devendra Kumar Garg v. State of U.P., 1990 SCC OnLine All 806 and added that until and unless company or firm is arraigned as an accused director or the other officer of the company/firm cannot be prosecuted/punished in the complaint.

Counsel for the respondent, S.B. Maurya attempted to refute these contentions by submitting that the cheques were drawn by the petitioner in his personal capacity and were given by way of security for payment of money. The circumstances do not warrant the arraignment of the aforementioned firm as a party.

The Court perused the cheques closely and concluded that the cheques bear the petitioner’s signature and that there is no dispute with regard to the fact that the petitioner is the sole proprietor of Rashmi Arosole & Chemicals. Also, on perusal of the registration certificate of the firm, it can be established that the petitioner is the sole proprietor of the firm namely Rashmi Arosole & Chemicals.

Upon careful consideration of the facts, circumstances and arguments advances, the Court observed that-

“While a partnership results in the collective identity of a firm coming into existence, a proprietorship is nothing more than a cloak or a trade name acquired by an individual or a person for the purpose of conducting a particular activity. With or without such trade name, it (sole proprietary concern) remains identified to the individual who owns it. It does not bring to life any new or other legal identity or entity. No rights or liabilities arise or are incurred, by any person (whether natural or artificial), except that otherwise attach to the natural person who owns it. Thus it is only a ‘concern’ of the individual who owns it. The trade name remains the shadow of the natural person or a mere projection or an identity that springs from and vanishes with the individual. It has no independent existence or continuity.”

The Court was able to conclude that in a sole proprietary concern, vicarious liability cannot arise because there’s only one person involved. The identity of the sole proprietor and his concern remain one, even if the sole proprietor may adopt a different name for his concern. Hence, there is no defect in the complaint lodged by the respondent. The sole proprietorship firm need not be impleaded for the respondent to realise his claim against the petitioner.

In view of the above, the petition has been dismissed for lack of merit. The Court found no reason to interfere in the orders dated 31-10-2018 passed by Additional Court No. 3, Agra and the order dated 6-2-2020 passed by Additional Sessions Judge against the petitioner. [Dhirendra Singh v. State of U.P., 2020 SCC OnLine All 1130, decided on 13-10-2020]


Yashvardhan Shrivastav, Editorial Assistant has put this story together

OP. ED.SCC Journal Section Archives

The National Company Law Appellate Tribunal (hereinafter “Nclat”) recently in Shah Bros. Ispat1, approved parallel continuation of proceedings under the Negotiable Instruments Act, 1881 (hereinafter “the NI Act”) against a company subjected to moratorium while undergoing resolution process under the Insolvency and Bankruptcy Code, 2016 (hereinafter “the IB Code”). The decision of Nclat raises multiple issues ranging from an apparent conflict between the NI Act and the IB Code to practical impossibilities in allowing both the proceedings to continue simultaneously. The object of the article is to discuss the legal problems that may arise in light of the decision in Shah Bros. Ispat1, and why the decision needs to be revisited in light of the settled law.

DECISION IN SHAH BROS. ISPAT2

The appellant creditors before Nclat had initiated two separate proceedings under Section 138 of the NI Act, one prior to the admission of insolvency proceedings under the IB Code and one post the admission of insolvency proceedings under the IB Code. The respondent debtor contended that once a moratorium is imposed under Section 14(1)2 of the IB Code, proceedings under the NI Act would have to be halted. Nclat categorically rejected the submission and held:

6. … as Section 138 is a penal provision, which empowers the court of competent jurisdiction to pass order of imprisonment or fine, [and] cannot be held to be proceeding or any judgment or decree of money claim. Imposition of fine cannot held to be a money claim or recovery against the Corporate Debtor nor order of imprisonment, if passed by the court of competent jurisdiction on the Directors, they cannot come within the purview of Section 14. Infact no criminal proceeding is covered under Section 14 of I&B Code.3

The major precise for allowing parallel continuation of proceedings was that the moratorium does not cover criminal proceedings, but it is submitted that while this position might be true, proceedings under the NI Act cannot be classified as criminal proceedings in strict sense. The decision of Nclat raises multiple issues, namely:

(a) whether proceedings under the NI Act are purely criminal in nature,

(b) whether the accused company’s right to compose (and put an end to) a cheque bounce case is circumvented during the imposition of moratorium, and

(c) whether continuation of parallel proceedings under the NI Act and the IB Code conflict with the object as well as the procedure of the resolution process and if whether it affects the rights of other creditors.

For the purposes of the argument, the article does not distinguish between the NI proceedings initiated prior to the initiation of proceedings under the IB Code and the NI proceedings initiated post the initiation of proceedings under the IB Code since the reasoning of Nclat permeates both the scenarios.

[Read more]


Advocate, Punjab and Haryana High Court, Chandigarh, BA LLB (Hons.) and Executive Member, Bar Association of Punjab and Haryana High Court. Graduated in 2016 from National Law University, Delhi. Ph. No: +918447586173. Email Address mittalakaant@gmail.com, akaant.mittal.alumni@nludelhi.ac.in.

** This article was first published in Supreme Court Cases (2020) 1 SCC J-23. It has been reproduced with the kind permission of Eastern Book Company

[1] Shah Bros. Ispat (P) Ltd. v. P. Mohanraj, 2018 SCC OnLine NCLAT 415.

[2] Insolvency and Bankruptcy Code 2016, Section 14(1) states:

14. Moratorium.—(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the adjudicating authority shall by order declare moratorium for prohibiting all of the following, namely:

(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

(emphasis supplied)

[3] Shah Bros. Ispat (P) Ltd., 2018 SCC OnLine NCLAT 415, para 6.

Case BriefsSupreme Court

Supreme Court: On the question of liability to be proceeded with for offence under Section 68 of FERA, 1973, the bench of Ashok Bhushan and R. Subhash Reddy, JJ has held that the same depends on the role one plays in the affairs of the company and not on mere designation or status. The Court explained,

“for proceeding against a Director of a company for contravention of provisions of FERA, 1973, the necessary ingredient for proceeding shall be that at the time offence was committed, the Director was in charge of and was responsible to the company for the conduct of the business of the company.”

Drawing correlation between Section 141 of the Negotiable Instruments Act, 1981 and Section 68 of FERA, 1973, the Court explained that Section 141 of NI Act contains the same conditions for a person to be proceeded with and punished for offence as contained in Section 68 of FERA, 1973. While coming to the aforementioned conclusion, the Court noticed that Section 141(1) of NI Act uses the same expression “every person, who, at the time the offence was committed, was in charge of and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence”. It, hence, said that Section 68 of FERA, 1973 as well as Section 141 of the Negotiable Instruments Act deals with the offences by the companies in the same manner.

The bench noticed that Section 68 of FERA, 1973 deals with “Offences by companies” and Section 68(1) creates a legal fiction, i.e., “shall be deemed to be guilty”. The legal fiction triggers on fulfilment of conditions as contained in the section. The words “every person who, at the time of the contravention was committed, was in charge of, and was responsible to, the company for the conduct of business” has to be given some meaning and purpose.

“The provision cannot be read to mean that whosoever was a Director of a company at the relevant time when contravention took place, shall be deemed to be guilty of the contravention. Had the legislature intended that all the Directors irrespective of their role and responsibilities shall be deemed to be guilty of contravention, the section could have been worded in different manner. When a person is proceeded with for committing an offence and is to be punished, necessary ingredients of the offence as required by Section 68 should be present.”

The bench agreed with the submission that FERA, 1973 does not contemplate any complaint but the Scheme of the Act indicates that a person, who is to be proceeded with has to be made aware of the necessary allegations, which may constitute an offence on his part. It said that though a person in the commercial world having a transaction with company is entitled to presume that the Directors of the company are in charge of the affairs of the company, the presumption of a person in the commercial world is a rebuttable presumption and when adjudicating authority proceeds to impose a penalty for a contravention of FERA, 1973, essential ingredients constituting an offence under the FERA read with Section 68 has to be communicated to the person proceeded with to enable him to make effective representation in the matter.

It further explained that in FERA, 1973 for imposing a penalty under Section 50, the adjudicating officer is required to hold an enquiry after giving the person a reasonable opportunity for making a representation in the matter. Even though, FERA, 1973 does not contemplate filing of a written complaint but in proceedings as contemplated by Section 51, the person, who has to be proceeded with has to be informed of the contravention for which penalty proceedings are initiated. The expression “after giving that person a reasonable opportunity for making a representation in the matter” as occurring in Section 51 itself contemplate due communication of the allegations of contravention and unless allegations contains complete ingredients of offence within the meaning of Section 68, it cannot be said that a reasonable opportunity for making a representation in the matter has been given to the person, who is to be proceeded with.

[Shailendra Swarup v. Deputy Director, Enforcement Directorate, 2020 SCC OnLine SC 600 , decided on 27.07.2020]


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