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]