Delhi High Court: Quashes Complaint under Section 138 of NI Act Due to Lack of Prima Facie Evidence
Case title: GARHWAL JEMS AND JEWELLERY PVT. LTD. & ORS. VS RMI STEELS LTD.
Case no.: CRL.M.C. 2452/2022 & CRL.M.A. 10307/2022
Dated on: 29th February 2024
Quorum: Hon’ble. MR JUSTICE NAVIN CHAWLA
FACTS OF THE CASE
This petition has been filed under Section 482 of the Code of Criminal Procedure, 1973 (in short, ‘Cr.P.C.’) read with Article 227 of the Constitution of India, praying for quashing of the complaint filed by respondent under Sections 138 read with Section 142 of the Negotiable Instruments Act, 1881 (in short, ‘NI Act’), being CC No. 5840/2019, titled as M/s RMI Steels Ltd. v. M/s Garhwal Jems & Jewellery Pvt. Ltd. & Ors., pending before the Court of the learned Metropolitan Magistrate, NI Act-06, Central-District, Tis Hazari Courts, Delhi. The above complaint has been filed by the respondent alleging that the respondent entered into an Agreement to Sell dated 31.03.2018 with the petitioner no.1 for sale of its movables and immovable property of its factory situated at Plot No. A-1 and B-1 measuring 32926.20 sq. mtr. (Comprising 24406.73 sq mtr. of A-l and 8519.47 sq. mtr of B-1) at Village Dhalwala, Muni-ki-Reti Industrial Area, District Tehri Garhwal, Uttarakhand, for a total consideration of Rs.9.30 crores. That in terms of the said Agreement to Sell, the petitioners, after paying sale consideration to the tune of Rs.5,73,64,050/-, were liable to pay the balance sale consideration of Rs.3,47,05,950/-, which they undertook to pay in form of discharge of liabilities / dues of the respondent on or before 30.09.2018. The complaint further alleges that it was agreed between the parties that on failure on the part of the accused to discharge the said dues, it would entitle the respondent to recover the same from the petitioners / accused. In order to secure the payment of the aforesaid dues, a cheque bearing no.079173 for a sum of Rs.75,00,000/- drawn on the Punjab National Bank, Rishikesh, was issued by the petitioner in favour of the respondent as a security deposit. It is further alleged that the debt that the petitioners had undertaken to discharge, became due and payable in October 2018, however, as the petitioners failed to discharge the same, on 09.01.2019, an Addendum to the aforementioned Agreement to Sell was executed between the parties. It is further alleged that as the accused failed to discharge the debt by 29.04.2019 as well, in terms of the Addendum, the respondent presented the above-mentioned cheque, which was returned dishonored by the bank with the remarks ‘funds insufficient’. A legal Notice dated 30.04.2019 was sent by the respondent to the petitioners, to which the petitioners replied vide reply dated 18.05.2019, denying their liability to pay the said amount. The respondent, therefore, filed the above complaint.
ISSUES
- Whether the complaint under Section 138 of the Negotiable Instruments Act, 1881 (NI Act), discloses a prima facie case against the petitioners.
- Whether the cheque in question was issued for the discharge of any debt or liability as defined under Section 138 of the NI Act.
- Whether the respondent was forced to make any payment to its creditors due to the petitioners’ failure to discharge their liabilities.
- Whether the complaint should be quashed under the inherent powers of the High Court under Section 482 of the Code of Criminal Procedure, 1973 (Cr.P.C.).
- Whether the conditions specified in the Agreement to Sell and the Addendum for encashment of the security cheque were met.
LEGAL PROVISIONS
Code of Criminal Procedure, 1973 (Cr.P.C.)
Section 482: Saving of inherent powers of High Court
This section preserves the inherent powers of the High Court to make orders necessary to prevent the abuse of the process of any court or otherwise to secure the ends of justice. It is often invoked to quash criminal proceedings that do not disclose a prima facie case or are otherwise frivolous.
Constitution of India
Article 227: Power of superintendence over all courts by the High Court
This article grants every High Court the power of superintendence over all courts and tribunals within its jurisdiction. The High Court can exercise this power to ensure that subordinate courts function within the bounds of their authority and to correct any gross errors of law or fact.
Negotiable Instruments Act, 1881 (NI Act)
Section 138: This section makes it an offence if a cheque is dishonored due to insufficiency of funds or if the amount exceeds the arrangement made with the bank, provided certain conditions are met the cheque must be presented within six months (or its validity period). A notice demanding the payment must be issued to the drawer within 30 days of the receipt of information of dishonor. The drawer must fail to make the payment within 15 days of receiving the notice.
Section 142: Cognizance of offences This section outlines the conditions under which courts can take cognizance of offences under Section 138, including the necessity of a written complaint by the payee or the holder in due course of the dishonored cheque.
Section 139: Presumption in favour of holder This section presumes that the cheque was issued for the discharge, in whole or in part, of any debt or other liability unless the contrary is proved. This presumption shifts the burden of proof to the accused to show that there was no liability or debt.
CONTENTIONS OF THE APPELLANT
The learned counsel for the petitioner, drawing my attention to the terms of the Agreement to Sell dated 31.03.2018 and the Addendum dated 09.01.2019 executed between the petitioner no.1 and the respondent, submits that the cheque of Rs.75 lakhs could be encashed by the respondent only when the petitioners fail to make the payment in discharge of the liabilities of the respondent and the respondent is forced to make the payment for the same. The learned counsel for the petitioners submits that in the present case, the complaint does not state that the respondent had to make any payment to its own debtors for discharge of the liability, therefore, to its own showing, there was no debt owed by the petitioners to the respondent for which the security cheque of Rs.75 lakhs could have been presented by the respondent for encashment. He submits that, in the absence of these averments in the complaint, the complaint is not maintainable and is liable to be dismissed. In rejoinder, the learned counsel for the petitioner submits that the plea of the respondent that the lease deed has been obtained by misrepresentation is totally false and, in fact, it is the respondent who is trying to make an unjustified gain by encashing the cheque.
CONTENTIONS OF THE RESPONDENTS
The learned counsel for the respondent submits that the plea raised by the petitioner is a disputed question of fact, which can be best determined by the learned Trial Court on evidence being led by the parties. She submits that the petitioners have also obtained a Lease Deed from SIDCUL based on misrepresentations. Further submits that the Agreement to Sell and the Addendum were executed by the petitioners only to discharge its liabilities owed to such institutions and others, as is also recorded in the Agreement to Sell. She submits that the petitioners failed to make the payment of the dues to such institutions and others, thereby entitling the respondent to present the cheque for encashment. She submits that in any case, these are matters to be considered by the learned Trial Court and cannot be a ground for quashing the complaint at this stage.
COURT’S ANALYSIS AND JUDGEMENT
I have considered the submissions made by the learned counsels for the parties. A reading of the above averments would show that the respondent claims that the liability for which the cheque has been presented is under the Agreement to Sell dated 31.03.2018 read with the Addendum dated 09.01.2019, and that the cheque had been presented for encashment as the petitioners failed to discharge their debt by 29.03.2019. In the Complaint, there is no averment that the respondent had to pay the debt due to the default of the petitioners. A reading of the above terms/clauses would clearly show that it is only where the petitioners, as a purchaser, fail to pay the dues owed to the workers, the State Industrial Development Corporation of Uttarakhand Limited (SIDCUL), Service Tax dues, and the VAT dues, owed by the respondent, and the respondent, as a seller, has to pay the same, that the respondent would debit the account of the petitioner/purchaser, making the petitioner liable to pay the said amount, and thereafter proceed to encash the security cheque of Rs.75 lakhs. For the liability to arise for the presentation of the cheque for encashment, therefore, it is essential that the respondent is forced to make the payment to the workers/above-mentioned authorities, which liability, otherwise, the petitioners had undertaken to pay in terms of the Agreement to Sell and the Addendum. In the present case, the Complaint does not state that the respondent had to make any payment to any of the above-mentioned workers/authorities. Therefore, the liability for which the cheque of Rs.75 lakhs was given by the petitioners as security to the respondent, had not arisen and the cheque could not have been presented for encashment by the respondent. One of the conditions which has to be satisfied by the complainant for making out an offence under Section 138 of the NI Act against the drawer of the cheque, is that the cheque in question has been issued for the discharge, in whole or in part, of any debt or any liability of the accused. In the present case, as the debt or liability in terms of the Agreement to Sell and/or the Addendum itself had not arisen, Section 138 of the NI Act was not attracted and the ingredients of the offence were not satisfied. Though, the learned counsel for the respondent has placed reliance on Section 139 of the NI Act to submit that there shall be a presumption that a cheque issued is for discharge of any debt or other liability, however, the presumption in the present case stands negated by the very terms of the Agreement to Sell and the Addendum. Though the power under Section 482 of the Cr.P.C. is to be exercised sparingly and in the rarest of rare cases, at the same time, where, from a bare reading of the complaint, the offence is not made out, the power must be exercised to quash such a complaint. Applying the abovementioned principles enunciated by the Supreme Court to the facts of the present case, as the Complaint filed by the respondent lacks the necessary averments that would give rise to the debt and/or liability of the petitioners for which the cheque had been issued, the complaint filed by the respondent deserves to be quashed. Accordingly, the petition is allowed. Complaint, being CC No. 5840/2019, titled as M/s RMI Steels Ltd. v. M/s Garhwal Jems & Jewellery Pvt. Ltd. & Ors., pending before the Court of the learned Metropolitan Magistrate – 06, NI Act, Central District, Tis Hazari Courts, Delhi is hereby quashed. There shall be no order as to costs.
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Judgement Reviewed by – HARIRAGHAVA JP
