Case BriefsSupreme Court

Supreme Court: While clarifying the law on leave to defend, the Division Bench of Vineet Saran and Dinesh Maheshwari*, JJ., held that even if there remains a reasonable doubt about the probability of defence, sterner or higher conditions could be imposed while granting leave to defend but, denying the leave would be ordinarily countenanced only in such cases where the defendant fails to show any genuine triable issue and the Court finds the defence to be frivolous or vexatious.

The plaintiff-respondent 1 filed the subject suit in terms of Order XXXVII of the CPC while stating itself to be a registered partnership firm manufacturing and supplying a wide variety of iron and steel products. The plaintiff contended that the defendant 1 represented itself as a real estate and infrastructure development firm while the defendant 2 represented itself as a contractor working with the defendant 1 for the construction work of its project namely ‘MIST’. The defendant 1 issued two cheques drawn on Axis Bank for a sum of Rs.14,72,269 and Rs. 13,34,319 while asking the plaintiff to present the cheques only after receiving intimation but no such intimation was received. Later on, the plaintiff issued a legal notice dated 28-01-2016 to the defendants demanding the dues and, upon their failure to make the requisite payment, filed the summary suit under Order XXXVII CPC.

Joint and Several Liability or a Blame Game?

The defendant 1 sought leave to defend with the contentions that it had no privity of contract and the purchase orders were issued only by the defendant 2; that the invoices in question were raised in the name of the defendant 2; that neither the purchase orders nor the invoices were bearing the signatures of the defendant 1; and that all the dealings were between plaintiff and defendant 2. On the contrary, the appellant-defendant 2 moved a separate application seeking leave to defend on the ground that the purchase orders were issued by him only on behalf of the defendant 1; and that the material supplied by the plaintiff was for the construction of project undertaken by defendant 1, who was the beneficiary of the said project.

Findings of the Courts below

The Trial Court held that no triable issues were raised by the defendants and declined their applications seeking leave to defend. Consequently, the suit was decreed in favour of the plaintiff for a sum of Rs. 89,50,244/- together with interest at the rate of 10% per annum with joint and several liability of the defendants to pay the decreetal amount.

The High Court held that the defendants were not entitled to leave to defend because the defences raised by them did not give rise to genuine triable issues; and the defences were frivolous and vexatious, raised only in order to deny the just dues of the seller of goods. Noticeably, the High Court made the following observations:

  • Though the cheques were issued by defendant 1, yet a suit would lie against defendant 2 as there was no such requirement in Order XXXVII CPC that the cheques which are issued for payments ought to be of the person against whom the liability is claimed. The High Court further observed that as per Section 2 (d) of Contract Act, 1872 consideration under a contract need not flow/pass only between the parties to a contract.
  • The High Court also observed that even if the cheques were not presented, the suit would be maintainable under Order XXXVII CPC because there was no such requirement that the cheque ought to be dishonored for filing a summary suit.

Maintainability of the Summary Suit

Considering the factual background of the case, the Bench held that the contention against maintainability of the summary suit in terms of Order XXXVII CPC could not be accepted as the matter was based on written contract arising out of written purchase orders. The question as to whether the appellant was acting only as an agent of defendant 1 in relation to the supplies could only be a matter of his defence and could not take away the entitlement of the plaintiff to file a summary suit.

Law on Leave to Defend

The Bench opined that while dealing with an application seeking leave to defend, it would not be a correct approach to proceed as if denying the leave is the rule or that the leave to defend is to be granted only in exceptional cases or only in cases where the defence would appear to be a meritorious one. Precisely, the Bench framed the following rules:

  1. If the defendant satisfies the Court that he has substantial defence, i.e., a defence which is likely to succeed, he is entitled to unconditional leave to defend.
  2. Where the defendant raises triable issues indicating a fair or bonafide defence, albeit not a positively good defence, he would be ordinarily entitled to unconditional leave to defend.
  3. Where the defendant raises triable issues, but it remains doubtful if the defendant is raising the same in good faith or about genuineness of the issues, the Trial Court may impose conditions both as to time or mode of trial as well as payment into the Court or furnishing security to balance the requirements of expeditious disposal of commercial causes and of not shutting out triable issues.
  4. Where the proposed defence appear to be plausible but improbable, heightened conditions may be imposed as to the time or mode of trial as also of payment into the Court or furnishing security or both, which may extend to the entire principal sum together with just and requisite interest.
  5. In the case where any part of the amount claimed by the plaintiff is admitted by the defendant, leave to defend is not to be granted unless the amount so admitted is deposited by the defendant in the Court.

Conclusion

In the backdrop of above, the Bench concluded the following:

  1. The Trial Court as also the High Court totally omitted to consider that the appellant-defendant 2 had been contesting its liability with the assertion that it had only been the contractor executing the work of defendant 1.
  2. The conclusion that the defence raised by the appellant was frivolous or vexatious could only be treated as an assumptive one and lacking in requisite foundation.
  3. The effect and impact of an admitted position of the plaintiff, that payments were indeed made from time to time by the defendant 1, seems not to have gone into consideration of the Trial Court and the High Court while denying leave to the appellant.
  4. The same considerations, which weighed with the Courts to deny the leave to defend to the defendant 1, could not have been applied ipso facto to the case of the appellant; rather those considerations make out a case of triable issues qua the appellant.
  5. The view that the appellant has indeed raised triable issues, particularly concerning its liability and the defence of the appellant could not be said to be frivolous or vexatious altogether.

Accordingly, the appeal was allowed and the impugned judgments and orders of the High Court as well as of the Trial Court, insofar relating to the appellant were quashed and set. The appellant was granted leave to defend; and the amount of Rs. 40,00,000/- deposited by the appellant was directed to be treated as a deposit towards the condition for leave to defend. The Trial Court was directed to pass appropriate orders for treatment of the said amount and then proceed with trial of the suit only qua the appellant-defendant 2 in accordance with law.

[B.L. Kashyap & Sons Ltd. v. JMS Steels & Power Corpn., C.A. No. 379 of 2022,


*Judgment by: Justice Dinesh Maheshwari


Appearance by:

Advocate for the Appellant: Apoorva Bhumesh


Kamini Sharma, Editorial Assistant has put this report together

Armed Forces Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

Armed Forces Tribunal (Principal Bench): The Bench of Rajendra Menon, J., (Chairperson) and Lt Gen P.M. Hariz, Member (A) held that punishment of ‘Severe Reprimand and 07 days pay fine’ after summary trial does not fall under the umbrella of service matters. Therefore, the Tribunal has no jurisdiction to deal with the same.

Facts of the Case

The instant application had been filed to assail the punishment order vide which, on the basis of a summary trial, punishment of ‘Severe Reprimand and 07 days pay fine’ had been imposed on the applicant. The applicant had requested to quash the aforesaid punishment and that his case be considered for promotion.

The respondent contended that the grievance raised by the applicant and the relief claimed for, do not fall within the purview of ‘service matters’ as defined in Section 3(o) of the AFT Act; therefore, the Tribunal did not have jurisdiction to deal with the issue in question.

To assail the contention raised by the respondent, the applicant had relied on the decision of Major Kunwar Ambreshwar Singh v. Union of India, 2014 SCC OnLine All 15134, wherein the Allahabad High Court had held that the Tribunal had jurisdiction in the matter. In that case the High Court had interpreted the provisions of Section 3(o) of the AFT Act as follows:

“In view of above, while interpreting the provisions contained in Section 3(o) of the Act, the provisions contained in Clause (iv) containing the words, ‘any other matter, whatsoever,” cannot be excluded. In case these words are not taken into account, it shall make Clause (iv) redundant which is not permissible under Interpretative jurisprudence.

…A plain reading of the aforesaid provision reveals that it is not covered by the exception provided under Clause (iv) of sub-section (o) of Section 3 of the Act. Accordingly, it was not open for the Armed Forces Tribunal to remand back the case to the High Court. The tribunal has failed to exercise jurisdiction vested in it. The jurisdiction conferred by the statute cannot be diluted or interpreted otherwise by applying the principle of reading down. In case the order of the Principal Bench of Armed Forces Tribunal, New Delhi is upheld, it shall amount to supply of cautious omissus to Section 3 of the Act and deprive the right of army personnel to approach the tribunal for expeditious disposal of a dispute relating to the punishment awarded to them.

The punishment of ‘severe reprimand’ affects the service career of the army personnel. Even under dictionary meaning, the punishment of ‘severe reprimand’ shall be service matter and be amenable before Armed Forces Tribunal constituted under the Act.”

Analysis and Opinion

“A perusal of the definition of ‘service matters’ indicates that it has an ‘inclusion clause’, which includes certain matters, which are included within the definition of the ‘service matters’ and thereafter proceeds to exclude certain matters from the purview of ‘service matters’. However, very interestingly, in the inclusions clause, sub-clause (iv) reads as under: ‘any other matter, whatsoever’”

It was this phrase ‘any other matter, whatsoever’ which had been taken note of by the Allahabad High Court,, wherein the High Court had held that ‘any other matter, whatsoever’ is connected with the service dispute and falls within the purview of the definition, else the clause would become redundant. Disagreeing with the findings of the High Court, the Tribunal relied on the ‘Principles of Statutory Interpretation’ by Justice G.P. Singh (13th Edition), wherein it states that the object of interpretation of Statute is to ascertain the intention of the Legislature communicating it and advance the cause of such intention. The Book further states,

“While interpreting a provision or Statute affecting jurisdiction of courts, their exclusions or inclusions, their extent should be understood in a manner as is explicitly expressed by the law-maker and clearly implied from their intention. All exclusions must either be explicitly expressed or clearly implied.”

Analysing the definition of ‘service matters’, in the backdrop of aforesaid principles of statutory provisions, the Bench opined that in relation to persons subject to the Army Act, 1950, the Navy Act, 1957 and the Air Force Act, 1950, all matters relating to their conditions of service are brought within the purview of ‘service matters’ and Section 3(o) of the AFT Act clearly indicates that the ‘service matters’ shall include the items enumerated in sub-clauses (i), (ii) and (iii). Thereafter, clause (iv) speaks about ‘any other matter, whatsoever’.

Additionally, sub-clauses (i), (ii), (iii) to (iv) of the exclusion clause are taken away or excluded from the definition of ‘service matters’, that is they are beyond the jurisdiction of the Armed Forces Tribunal and one of the items excluded is ‘all punishment imposed after Summary Court Martial except dismissal or imprisonment for more than three months’.

In our considered view, the Allahabad High Court, with all due respect, has taken note of the ‘inclusion clause’ but has very conveniently ignored the ‘exclusion clause’.

Decision

In the above backdrop, the Bench opined that in Major Kunwar Ambreshwar Singh’s case the Allahabad High Court had interpreted the legislative intent and the scope and manner of words ‘service matters’ in a manner which would be doing harm to the legislative intent by ignoring certain parts of the definition and interpreting the same, in a manner that the ‘exclusion clause’ contained in the definition is totally given a go-by or ignored. Therefore, the Bench held that the said judgment did not lay down the correct legal principle viz. a viz. the definition of ‘service matters’ and the same would not be a binding precedent.

Accordingly, it was held that the subject-matter of the dispute, canvassed by the applicant did not fall within the definition of ‘service matters’, therefore, the Tribunal had no jurisdiction to deal with the matter. The application was dismissed with liberty to the applicant to take recourse remedy as may be permissible under law. [Shatrughan Singh Tomar v. Union of India, 2021 SCC OnLine AFT 8277, decided on 07-04-2021]


Kamini Sharma, Editorial Assistant has reported this brief.


Appearance by:

For the Applicant: V.S. Kadian with Shri Pardeep Singh Nandal, Advocates

For Respondents: Ashok Chaitanya, Advocate

Case BriefsSupreme Court (Constitution Benches)

Supreme Court: Noticing that the summary trials of complaints filed under Section 138 of the Negotiable Instruments Act, 1881 are being routinely converted to summons trials in a “mechanical manner”, the Constitution bench of SA Bobde, CJ and L. Nageswara Rao, BR Gavai, AS Bopanna and S. Ravindra Bhat, JJ has directed the High Courts to issue practice directions to the Magistrates for recording cogent and sufficient reasons while doing so.

The Court explained that in a case tried summarily in which the accused does not plead guilty, it is sufficient for the Magistrate to record the substance of the evidence and deliver a judgment, containing a brief statement of reasons for his findings. There is a restriction that the procedure for summary trials is not to be applied for any sentence of imprisonment exceeding three months. However, Sections 262 to 265 of the Code were made applicable “as far as may be” for trial of an offence under Chapter XVII of the Act, notwithstanding anything contained in the Code.

“It is only in a case where the Magistrate is of the opinion that it may be necessary to sentence the accused for a term exceeding one year that the complaint shall be tried as a summons trial.”

However, considering the the responses of various High Courts, the Court noticed that the conversion by the Trial Courts of complaints under Section 138 from summary trial to summons trial is being done mechanically without reasons being recorded.

“The result of such conversion of complaints under Section 138 from summary trial to summons trial has been contributing to the delay in disposal of the cases.”

Further, the second proviso to Section 143 mandates that the Magistrate has to record an order spelling out the reasons for such conversion. The object of Section 143 of the Act is quick disposal of the complaints under Section 138 by following the procedure prescribed for summary trial under the Code, to the extent possible.

“The discretion conferred on the Magistrate by the second proviso to Section 143 is to be exercised with due care and caution, after recording reasons for converting the of the complaint from summary trial to summons trial. Otherwise, the purpose for which Section 143 of the Act has been introduced would be defeated.”

Listing the matter for further consideration after 8 weeks, the Court concluded:

1) The High Courts to issue practice directions to the Magistrates to record reasons before converting trial of complaints under Section 138 of the Act from summary trial to summons trial.

2) Inquiry shall be conducted on receipt of complaints under Section 138 of the Act to arrive at sufficient grounds to proceed against the accused, when such accused resides beyond the territorial jurisdiction of the court.

3) For the conduct of inquiry under Section 202 of the Code, evidence of witnesses on behalf of the complainant shall be permitted to be taken on affidavit. In suitable cases, the Magistrate can restrict the inquiry to examination of documents without insisting for examination of witnesses.

4) Suitable amendments be made to the Act for provision of one trial against a person for multiple offences under Section 138 of the Act committed within a period of 12 months, notwithstanding the restriction in Section 219 of the Code.

5) The High Courts to issue practice directions to the Trial Courts to treat service of summons in one complaint under Section 138 forming part of a transaction, as deemed service in respect of all the complaints filed before the same court relating to dishonour of cheques issued as part of the said transaction.

6) Trial Courts have no inherent power to review or recall the issue of summons. However, this does not affect the power of the Trial Court under Section 322 of the Code to revisit the order of issue of process in case it is brought to the court’s notice that it lacks jurisdiction to try the complaint.

7) Section 258 of the Code is not applicable to complaints under Section 138 of the Act. To conclusively deal with this aspect, amendment to the Act empowering the Trial Courts to reconsider/recall summons in respect of complaints under Section 138 shall be considered by the Committee constituted by an order of this Court dated 10.03.2021.

On 10.03.2021, a Committee with Hon’ble Mr. Justice R.C. Chavan, former Judge of the Bombay High Court, as the Chairman was formed to consider various suggestions that are made for arresting the explosion of the judicial docket.

8) All other points, which have been raised by the Amici Curiae in their preliminary report and written submissions and not considered herein, shall be the subject matter of deliberation by the aforementioned Committee. Any other issue relating to expeditious disposal of complaints under Section 138 of the Act shall also be considered by the Committee.

The aforementioned directions came in the case relating to “Expeditious Trial of Cases under Section 138 of N.I. Act 1881” in the light of the humongous pendency of complaints under the said provision.

The preliminary report submitted by the Amici Curiae showed that as on 31.12.2019, the total number of criminal cases pending was 2.31 crores, out of which 35.16 lakh pertained to Section 138 of the Act. The reasons for the backlog of cases, according to the Amici Curiae, is that while there is a steady increase in the institution of complaints every year, the rate of disposal does not match the rate of institution of complaints.

[In Re: EXPEDITIOUS TRIAL OF CASES UNDER SECTION 138 OF N.I. ACT 1881, 2021 SCC OnLine SC 325, decided on 16.04.2021]


Appearances before the Court by:

Amici Curiae: Senior Advocate Siddharth Luthra and advocate K. Parameshwar

Tushar Mehta, Solicitor General of India and Vikramjit Banerjee, Additional Solicitor General of India,

Advocate Ramesh Babu for the Reserve Bank of India

Advocate Dr. Lalit Bhasin for the Indian Banks’ Association.

Case BriefsHigh Courts

Delhi High Court: Rajnish Bhatnagar, J., held that:

“Once a cheque is issued by a person, it must be honored and if it is not honoured, the person is given an opportunity to pay the cheque amount by issuance of a notice and if he still does not pay, he is bound to face the criminal trial and consequences.”

Accused 2, 3 and 4 had approached Respondent 2 in January 2009 and allured him into investing Rs 50 lacs in their company with the assurance that the same would be doubled in 5 years and relying on such assurances, he invested his lifetime savings with them.

Accused persons failed to return the principal amount with interest being total of Rs 1 Crore but then he was further inducted to invest Rs 20 lacs more with the promise to return Rs 2 crores on or before March 2019 and that MoU dated 26-07-2018 was executed, whereby accused persons undertook to pay the complainant a sum of Rs 47,53,519 and a cheque was also issued; and that later MoU dated 05-05-2019 was executed and it was promised that the complainant would be made a partner in the business and receipt of Rs 50 lacs as principal amount was retained with the promise that it would be safe and secure with them and it would become Rs 2 crores in 2019.

On 18-02-2019 another Promissory Note was issued by accused 2 in favour of the complainant and his wife acknowledging liability to pay an amount of Rs 2,47,53,000/- payable to the complainant and his wife on or before 30-06-2019.

Later, in July 2019 nine cheques were issued and the said cheques were dishonored and while cheque at Sr No. 1 was dishonored for the reasons “account closed”, the bank returning memos in respect of other cheques from Sr Nos. 2 to 9 came with the remarks “kindly contact drawer”.

Respondent 2 served a legal notice upon the accused persons, which were duly served upon but since no payment was made under the cheque, the complaint was filed by respondent 2.

Accused 4/ Petitioner was summoned by the MM for offences under Section 138 of the Negotiable Instruments Act.

Petitioner sought quashing of the present proceedings on the grounds that neither she was a Director nor she had signed the cheques in question nor she ever participated in any of the meeting or negotiations with the complainant with regard to the transactions in question nor she ever executed any document, hence she had no role in the offence.

Analysis, Law and Decision

“…Negotiable Instruments Act, provides sufficient opportunity to a person who issues the cheque.”

Bench stated that the High Court cannot usurp the powers of the Metropolitan Magistrate and entertain a plea of an accused, as to why he should not be tried under Section 138 of the N.I. Act.

The plea regarding why he should not be tried under Section 138 NI Act is to be raised by the accused before the Court of Metropolitan Magistrate.

Further, the High Court expressed that an offence under Section 138 of the N.I. Act is technical in nature and defences, which an accused can take, are inbuilt; for instance, the cheque was given without consideration, the accused was not a Director at that time, accused was a sleeping partner or a sleeping Director, cheque was given as a security etc., etc., the onus of proving these defences is on the accused alone, in view of Section 106 of the Indian Evidence Act, 1872

Burden of Proving

Offence under Section 138 NI Act is an offence in the personal nature of the complainant and since it is within the special knowledge of the accused as to why he is not to face trial under Section 138 NI Act, he alone had to take the plea of defense and the burden cannot be shifted to complainant.

“…no presumption that even if an accused fails to bring out his defense, he is still to be considered innocent.”

If an accused has a defense against dishonour of the cheque in question, it is he alone who knows the defense and responsibility of spelling out this defense to the Court and then proving this on the accused.

In the instant case, respondent 2/complainant stated that under Section 138 of N.I. Act has made specific averments that while Accused’s 2 and 3 were directors of the company, accused 4 had been handling finance and accounts of the accused 1 company and responsible for its day to day operations alongwith other accused persons.

Court stated that the plea raised for the petitioner that Summy Bhasin never participated in any negotiations with the complainant cannot be considered at this preliminary stage since such defense can only be considered during the trial stage.

Prosecution under Section 138 of the Act can be launched for vicarious liability against any person, who at the time of commission of offence was in charge and responsible for the conduct of the business of the accused company.

Petitioners plea that the offences were committed without his knowledge cannot be considered at this stage considering the fact that the Complainant specifically averred that negotiations had taken place with him along with other co-accused persons and they were prima facie aware about the whole series of transaction.

Lastly, Bench expressed that the deal with the complainant was not a trivial or a routine case of marketing, sale or purchase of goods or services.

When such a huge investment was being sought from the complainant and applied for the running of the affairs of the company, it is not fathomable that the accused persons were unaware of the financial implications for themselves and for the accused company.

In exercise of jurisdiction under Section 482 CrPC, Court cannot go into the truth or otherwise of the allegations made in the complaint or delve into the disputed questions of facts.

Therefore, it can be concluded from the above discussion that, Section 138 of the NI Act spells out the ingredients of the offence and the said ingredients are to be satisfied mainly on the basis of documentary evidence, keeping in mind the presumptions under Sections 118 and 139 of NI Act and Section 27 of the General Clauses Act as well as the provisions of Section 146 of the Act.

“…trial that alone can bring out the truth so as to arrive at a just and fair decision for the parties concerned.”[Summy Bhasin v. State of NCT of Delhi, 2021 SCC OnLine Del 1189, decided 10-03-2021]

Case BriefsSupreme Court

Supreme Court: On the question relating to the power of the court to grant leave to defend in case of sham or moonshine defence in a commercial dispute, the bench of Ashok Bhushan and Navin Sinha, JJ said,

“if the court is satisfied of a plausible or probable defence and which defence is not considered a sham or moonshine, but yet leaving certain doubts in the mind of the court, it may grant conditional leave to defend.”

The Court also explained that in a summary suit, if the defendant discloses such facts of a prima facie fair and reasonable defence, the court may grant unconditional leave to defend. This naturally   concerns the subjective satisfaction of the court on basis of the materials that may be placed before it.

Explaining the distinction between both the above mentioned subjective satisfactions of the court, the bench said,

“in the latter case there is an element of discretion vested in the court. Such discretion is not absolute but has to be judiciously exercised tempered with what is just and proper in the facts of a particular case.”

The court said that the ultimate object of a summary suit is expeditious disposal of a commercial dispute. The discretion vested in the court therefore requires it to maintain the delicate balance between the respective rights and contentions by not passing an order which may ultimately end up impeding the speedy resolution of the dispute.

The Court also relied upon the decision in IDBI Trusteeship Services Limited vs. Hubtown Limited,  (2017) 1 SCC 568, wherein it was held,

“17.3 Even if the defendant raises triable issues, if a doubt is left with the trial Judge about the defendant’s good faith, or the genuineness of the triable issues, the trial Judge may impose conditions both as to time or mode of trial, as  well as payment into court or furnishing security. Care must be taken to see that the object of the provisions to assist expeditious disposal of commercial causes is not defeated. Care must also be taken to see that such triable issues are not shut out by unduly severe orders as to deposit or security.

17.4. If the defendant raises a defence which is plausible but improbable, the trial Judge may impose conditions as to time or mode of trial, as well as payment into court, or furnishing security. As such a defence does not raise triable issues, conditions as to deposit or security or both can extend to the entire principal sum together with such interest as the court feels the justice of the case requires.”

[Sudin Dilip Talaulikar v. Polycap Wires Pvt. Ltd, 2019 SCC OnLine SC 857, decided on 15.07.2019]