SUMMONING OF ACCUSED BY A MAGISTRATE EVEN AFTER CLOSURE REPORT

 

SUMMONING OF ACCUSED BY A MAGISTRATE EVEN AFTER CLOSURE REPORT

 

In a F.I.R case, in case, after investigation, prima facie offence against the accused is made out, a charge sheet containing the details of allegations along with documents in support thereof is submitted before appropriate court of jurisdiction for the prosecution of the case. However, in case, the offence, according to the Investigating Officer is not made out, then, a closure report used to be filed by the Police before the Courts of appropriate jurisdiction, for seeking closure of the case. The Courts, in such cases, after notifying the complainant shall have the option to accept the closure report, or reject it. The Court shall also have the option of summoning the accused, if it in the opinion of the case, sufficient evidence is there in the charge sheet, despite contrary report from the police. The Court may in the alternative also direct police to conduct further investigation and thereafter file a report. Therefore, it is evident that there are several options before the Court, when faced with the situation as narrated above.

The aforesaid situation however is not comprehensive. Some time the Investigating Officer does not file a closure report and the proposed accused  are named in column 12 i.e the accused are , though, suspected of committing offence, but for want of sufficient evidence, the accused are not proposed to be sent for trial. Ironically, when closure report is not filed, and names of accused figured in column 12, the Court remains uncertain as to how to deal with the situation?  Whether Court shall have the option of calling upon the police for further investigation, as that option undoubtedly remains, the moot point, however is, as to whether the Court can issue summons to the accused despite they are named in column 12 of Charge Sheet? The situation is made complex further, if the Court summons the accused, despite their names in column no.12 and when no reasons are ascribed for the summoning. It is no res integra, that the Court may issue summon even to the accused whose names are there in Column 12, but, whether, the same can be done without assigning any reason shall be the essence of the present discussion.  Moreover, if the summons in the context as aforesaid is issued, without assigning any reasons, what shall have the effect of such summoning and/or remedy to the accused?

A recent judgment by Dharmveer vs State Of U.P & Another in a CRIMINAL REVISION No. - 1909 of 2023  rendered on 6 the May, 2024 is a pointer. Relying on S. Mohammed Ispahan Vs Yogendra Chandak & Ors , (2017) 16 SCC 226, In para 35 it is held as under:

“35. It needs to be highlighted that when a person is named in the FIR by the complainant, but police, after investigation, finds no role of that particular person and files the charge-sheet without implicating him, the Court is not powerless, and at the stage of summoning, if the trial court finds that a particular person should be summoned as accused, even though not named in the charge-sheet, it can do so. At that stage, chance is given to the complainant also to file a protest petition urging upon the trial court to summon other persons as well who were named in the FIR but not implicated in the charge-sheet. Once that stage has gone, the Court is still not powerless by virtue of Section 319of  C.rPC. However, this section gets triggered when during the trial some evidence surfaces against the proposed accused”.

It is held by Supreme Court that the fact that the fact that names of the appellants were mentioned in the FIR and even in the statement of witnesses recorded under Section 161 Cr.PC these appellants were named and such statements under Section 161 Cr.PC would constitute "documents" and thus, in this context, the High Court has observed that "evidence" within the meaning of Section 319 Cr.PC would include the aforesaid statements and, therefore, the appellants could be summoned was held to be incorrect. According to Supreme Court, the aforesaid reasons given by the High Court do not stand the judicial scrutiny. The High Court has not dealt with the subject-matter properly and even in the absence of strong and cogent evidence against the appellant, it has set aside the order of the Chief Metropolitan Magistrate and exercised its discretion in summoning the appellants as accused persons. It is held as under:

“…No doubt, at one place the Constitution Bench observed in Hardeep Singh case [Hardeep Singh v.State of Punjab, (2014) 3 SCC 92 : (2014) 2 SCC (Cri) 86] that the word "evidence" has to be understood in its wider sense, both at the stage of trial and even at the stage of inquiry. In para 105 of the judgment, however, it is observed that "only where strong and cogent evidence occurs against a person from the evidence led before the court that such power should be exercised and not in a casual and cavalier manner". This sentence gives an impression that only that evidence which has been led before the Court is to be seen and not the evidence which was collected at the stage of inquiry. However there is no contradiction between the two observations as the Court also clarified that the "evidence", on the basis of which an accused is to be summoned to face the trial in an ongoing case, has to be the material that is brought before the Court during trial. The material/evidence collected by the investigating officer at the stage of inquiry can only be utilised for corroboration and to support the evidence recorded by the Court to invoke the power under Section 319  Cr.PC”.

It is further held as under:

35. It needs to be highlighted that when a person is named in the FIR by the complainant, but police, after investigation, finds no role of that particular person and files the charge-sheet without implicating him, the Court is not powerless, and at the stage of summoning, if the trial court finds that a particular person should be summoned as accused, even though not named in the charge-sheet, it can do so. At that stage, chance is given to the complainant also to file a protest petition urging upon the trial court to summon other persons as well who were named in the FIR but not implicated in the charge-sheet. Once that stage has gone, the Court is still not powerless by virtue of Section 319 Cr.PC. However, this section gets triggered when during the trial some evidence surfaces against the proposed accused.

In Hardeep Singh (Supra) Five (5) Judge Constitution bench has held as under:

106. Thus, we hold that though only a prima facie case is to be established from the evidence led before the court, not necessarily tested on the anvil of cross-examination, it requires much stronger evidence than mere probability of his complicity. The test that has to be applied is one which is more than prima facie case as exercised at the time of framing of charge, but short of satisfaction to an extent that the evidence, if goes un-rebutted, would lead to conviction. In the absence of such satisfaction, the court should refrain from exercising power under Section 319 Cr.PC."

In the light of above, Allahabad High Court in Dharamveer (Supra) has held as under:

92. In view of above, this Court finds that the law regarding summoning of a prospective accused that stands crystallized by the Five Judges Bench judgment of the Supreme Court in Hardeep Singh (Supra), Brijendra Singh & Ors  Vs State of Rajsthan  (2017) 7 SCC 706 and S. Mohammed Ispahani  (Supra), is not satisfied in the present case. As per the law laid down by  the Apex Court in the case of Brijendra Singh (Supra) and S Mohammed Ishpahani (Supra) a prospective accused can be summoned in exercise of jurisdiction under Section 319  Cr.P.C. on the following parameters:

(A)    A prospective accused can be summoned on the statement-in-chief of one prosecution witness,

(B)    Irrespective of above, the Court dealing with an application under Section 319 Cr.P.C. must consider the plethora of evidence, which has emerged during the course of investigation as it is an important material to conclude the complicity/innocence of a prospective accused,

(C)    The Court should draw a parallel in between the statement of the prosecution witness examined up to that stage as recorded under Section 161 Cr.P.C. as well as his deposition before Court below to find out whether something new has emerged in the deposition of a prosecution witness from what was stated by him in his statement under Section 161 Cr.P.C,

(D)    A prospective accused cannot be summoned merely on the basis of his complicity in the crime in question, only if an inference of guilt of the prospective accused can be inferred as per the evidence up tho this stage,

(E)    The power under Section 319 Cr.P.C. is an extra-ordinary power which must be exercised sparingly. Furthermore, Court should exercise it's jurisdiction under Section 319 diligently and not in a "casual and cavalier" fashion,

(F)     Only when some strong and cogent evidence has emerged against a prospective accused rather than his mere complicity in the crime in question can a prospective accused be summoned and

(G)    The Court can summon a prospective accused only when on the basis of material on record, it can record the same degree of satisfaction as observed in paragraph 106 of the judgment in Hardeep Singh (Supra).

That on the basis of aforesaid judicial precedents, what is crystal clear is that a Magistrate, in spite of filing of closure report shall be entitled to apply his mind on the basis of record and if it appears to the Magistrate that summons could be issued to the accused persons, on the basis of material on record, the same can be done. However, the reason has to be given for such summoning order, more so, in the backdrop of closure report and why the magistrate is not agreeable with the Police Report. This is over and above, other options that a Magistrate can avail of i.e for seeking further investigation or accepting closure report as the case may be. What is worth mentioning in the context is that statement u/s 161 of Cr.P.C will have to be tested on the basis of deposition before Court and additional facts which may not be part of record may come out in the deposition. When on the basis of deposition of witnesses during trial, if some other evidences crops up, then, new accused may have to be summoned as per the principles of section 319 of Cr.P.C. Thus, the police report needs meticulous scrutiny and application of mind shall be necessary. The constitution bench judgment of Supreme Court has settled the position to the effect that there is no embargo in summoning the accused persons, irrespective of fact that the accused persons in a final report are shown in column 12 and/or closure report is filed. It is also not ambiguous that since summoning of accused in a criminal matter has vast ramification, therefore, such order of summoning should not be issued mechanically and should reflect application of mind and on the basis of prima facie evidence only accused should be summoned.

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                          Anil K Khaware

                 Founder & Senior Associate

                 Societylawandjustice.com

                

RIGHTS OF VICTIM TO BE A PARTY OR BEING HEARD IN F.I.R CASES

 

Rights of victim TO BE A PARTY OR BEING HEARD in F.I.R cases

 

In State cases i.e F.I.R cases, the responsibility of registering complaint, carrying out investigation, recording of statement of witnesses , verifying documents and/or getting CFL test done of samples collected during investigation, filing of charge sheet are the domain of state. Even after filing of charge sheet, it is the public prosecutor on behalf of state in F.I.R cases, who seeks conviction of accused and conducts cross examination of defence witnesses and also examine the prosecution witness. In essence, the State cases is perceived as wrong committed against society and not only the maintaining law and order, but for its violation and committing offence, the state takes the matter forward. Ironically, till recently, the roles and rights of the victims/complainants hardly existed and it was not even perceptible. In such a situation, some time if the prosecution failed to be diligent, the complainant in the ultimate analysis suffered. The need was thus felt that complainant being the victim and the one who raised complaint ought to have a role in State cases and their roles should be well defined. The law is thus evolved in this regard of late. In the present write up the roles and responsibility and its extent of complainant or victim shall be analysed as regards the changes and permissibility to the complainant to pursue or participate in cases as a victim.

In this regard the Delhi High Court has recently gone into the law vis a vis factual matrix of the case or cases in a matter captioned as Saleem Vs The State of NCT of Delhi & Anr bearing no. Bail Appln No. 3635/2022.  

                          VICTIM HAS RIGHT TO FILE APPEAL

(1) The Courts have been concerned about the predicament of victim and the said concern finds mention in a judgment rendered by Supreme Court in Mallikaarjun Kodagali (Dead) represented through LRs Vs State of Karnataka & Ors (2019)2 SCC 752 wherein the Supreme Court had highlighted the hurdles faced by the victim in accessing the criminal justice system, after being the sufferer of violence and therefore the victim can no longer be sidelined. The Supreme Court has in the context also held that victim shall have the right to file an appeal against the acquittal of the accused and that too without even seeking leave from the court. This is a clear departure from convention that only state only shall have the prerogative to prosecute the offender. This was so, as the notion that the crime is against people at large and hence only state shall have the wherewithal and responsibility to prosecute the case. The Mallikaarjun Kodagali (Supra) has therefore clearly expanded the role of victim as elucidated above.

Victim has participatory rights in all stAges

(2)  In a more recent verdict the Supreme Court in a matter reported as Jagjeet Singh & Ors Vs Ashish Mishra alias Monu & Anr (2022) 9 SCC 321   the Supreme Court has gone a step further and observed:

“ The victims have “……a legally vested right to be heard at every step post the occurrence of an offence…..;(they have) unbridled participatory rights from the stage of investigation till the culmination of the proceedings in an appeal or revision….and that mere presence of the State …”does not tantamount to according a hearing to a “victim” of the crime.”

WHETHER IMPLEADING OF VICTIM NECESSARY IN A CRIMINAL CASE

The right of participation and even filing of appeal by the victim is thus clearly established. Another aspect in this regard shall be worthy of discussion i.e whether the victim is required to be impleaded in all criminal cases?     

No doubt, that, though, the victim has unbridled participatory rights in each stages of the criminal case, but the victim shall not replace “State” and the right of heard shall not necessarily mean that the victim should be made a party and be answerable in all aspects. Moreover, section 439(1A) Cr.PC requires the Court to hear a victim at the stage of considering bail petitions and other similar matters, but the provision does not entail that the victim should be made a party to such proceedings.

The Delhi High Court in Saleem (Supra) has noted succinctly as under:

         29. The role of the victim, even on being afforded right to be heard, however must vary with the context and stage of criminal proceedings. In relation to bail proceedings for eg. The victim may assist the court in clarifying relevant facts, such as any threats received by the victim or other witnesses; or the possibility of evidence tampering, or even fight risk. However, the victim would have no role in determining, say, the necessity of custodial interrogation, which would be the job of investigating agency”.

“30. To reiterate, the right to be represented and be heard is distinct from the right or the obligation to be a party to a criminal proceedings”.

31. Indeed, there may be times where a victim may not seek a hearing before the Court, and making a victim a party to the proceedings, mandating them to appear and “defend”; so to speak, various proceedings that the State or the accused may initiate, may cause additional hardship and agony to the victim”.

The hon’ble Delhi High Court in Saleem (Supra) in the context, as narrated above, has recorded the following conclusion in para 33 of the said judgment:

33.1 There is no requirement in law to implead the victim, that is to say, to make the victim a party, to any criminal proceedings, whether instituted by the State or by the accused;

33.2 In accordance with the mandate of the Supreme Court in Jagjeet Singh (Supra),, a victim now has unbridled participatory rights in all criminal proceedings in relation to which the person is a victim, but that in itself is no reason to implead a victim as a party to any such proceedings, unless otherwise specifically so provided in the statute; Section 439(1A) Cr.P.C mandates that a victim be heard in proceedings related to bail, without however requiring that the victim be impleaded as a party to bail petition;

33.3 In light of the decision of the Supreme Court in Jagjeet Singh (Supra), Section 439(1A) Cr.PC must now be expanded to include the victim’s right to be heard even in petitions where an accused seeks anticipatory bail; a convict seeks suspension of sentence, parole, furlough, or other such interim relief;

33.4. To obviate any ambiguity, though Section 439(1A) Cr.PC makes the “presence of informant” obligatory at the time of hearing, what is clearly mandated thereby is the right of the victim, whether through the informant or other authorized representative, to be effectively heard in the matter. If necessary, legal-aid counsel may be appointed to assist in representing the victim, and the mere ornamental presence of the victim or their representative without affording them an effective right of hearing, would not suffice.

The aforesaid discussion leads to a clear conclusion that as law evolved , the victim has unbridled right in participating in the criminal proceedings. The right of the victim is also recognized to the effect that, even a victim may file appeal against the acquittal of the accused. It is also clearly established now, that whereas the victim shall have unqualified rights in terms of above, but, still, making them a party in a criminal case, either instituted by the prosecution or the accused shall not be necessary, since, once, the victim is made a party, compulsorily, then, appearing in hearings and being answerable to the petition shall cast onerous task on the victim and the victim may not be in position to do so and may also opt not to do so in several cases. Moreover, on aspects whether custodial interrogation of accused shall be necessary, or not, only prosecution may have to place the place the facts in this regard.

The right of victim to participate in criminal proceedings and even in filing appeal against acquittal of accused is now well recognized with a view to give a fillip to criminal justice system. The interest of victim in the above concept is thus well recognized, but, at the same time making the victim a party shall not be necessary for the reasons as illustrated in a judgment rendered by hon’ble Delhi High Court Saleem (Supra).

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                                  Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com

SECTION-138 OF NI ACT-WHETHER ACCUSED CAN FILE AFFIDAVIT EVIDENCE AS A WITNESS?

 

SECTION-138 of NI Act-WHETHER accused can FILE AFFIDAVIT EVIDENCE as A witness?

 

The process of trial finds procedural regulations in Code of Criminal Procedure (Cr.P.C) and after amendment, in Bhartiya Nyay Surakasha Sanhita (BNSS). In the Negotiable Instruments Act 1881(In short “NI Act”), section 138 was made part of the Act, in 1988, as cheque bouncing instances were on rise and remedial measures to infuse faith in cheque transaction cases were imperative and hence punitive measures is also prescribed u/s 138-142 of the NI Act. The Act has periodically undergone several changes with a view to reinforce the sanity and restore the faith of common people in cheque transactions. Several sections were included thereafter i.e 143-147 are added in the Act view of exigencies. The complaints under Section 138 of the NI Act was treated as summary case, as the cross examination of complainant was not envisaged, however, subsequently, in terms of Section 145, more particularly, section 145 (2), the Magistrate is made empowered to treat the complaint under the Act as summon case, if prima facie defence is available to the accused. In that event, the summary trial is to be treated as summon trial cases. Therefore, the complaints u/s 138 of NI Act, essentially are being tried as summon cases and not as summary cases.

Let us now come to another dimension to it i.e mode and manner of leading evidence. In Cr.P.C, as per section 315, the accused cannot be compelled to stand as witness, unless, it is sought for by the accused himself. In F.I.R case, the oral examination in chief is conducted, pursuant to the statement made before Police u/s 161 of Cr.PC and under the relevant provisions of BNSS, as the case may be. The departure,  however is clear u/s 138-145 of NI Act. It is of significance to point out that the examination of chief of complainant is recorded as per affidavit filed by the complainant and even when the complaint is treated as summons case, after application filed u/s 145(2) filed by the accused for seeking cross examination of complainant witness, there is no need to file separate affidavit or examination in chief and for cross examination of complainant witness. The affidavit in evidence, filed earlier is adopted as a practice and that follows cross examination.

A situation may be pondered over, though. What, if the accused seeks to examine himself as a defence witness and also seeks to file affidavit evidence.? Whether, it is permitted u/s 138 of NI Act complaint? Whether, the accused is permitted to file affidavit evidence, in a manner the complainant does? In the present write up the endeavour shall be to advert on these issues with a view to find answer.

The following judgments in this regard may have to be perused and its tenor and finding shall have to be analysed for arriving at a conclusion:   

(1)  SBI Global Factors Limited vs The State Of Maharashtra And Ors AIRONLINE 2021 BOM 772

 

In the aforesaid judgment, reliance was placed on the Hon'ble Supreme Court in the case of Mandvi Co-op. Bank Ltd. Vs. Nimesh B. Thakore reported in Manu/SC/0016/2010 : AIR 2010 SC 1402 : (2010) 3 SCC 83, in para Nos.30, 31 and 32 has held as under :

"30. Coming now to the last question with regard to the right of the accused to give his evidence, like the complainant, on affidavit, the High Court has held that subject to the provisions of sections 315 and 316 of the Code of Criminal Procedure the accused can also give his evidence on affidavit. The High Court was fully conscious that section 145(1) does not provide for the accused to give his evidence, like the complainant, on affidavit. But the High Court argued that there was no express bar in law against the accused giving his evidence on affidavit and more importantly providing a similar right to the accused would be in furtherance of the legislative intent to make the trial process swifter. In paragraph 29 of the judgment, the High Court observed as follows:

"It is true that section 145(1) confers a right on the complainant to give evidence on affidavit. It does not speak of similar right being conferred on the accused. The Legislature in their wisdom may not have thought it proper to incorporate a word `accused' with the word `complainant' in sub-section (1) of section 145 in view of the immunity conferred on the accused from being compelled to be a witness against himself under Article 20(3) of the Constitution of India...."

 

In paragraph 31 of the judgment it observed:

 

“.... Merely because, section 145(1) does not expressly permit the accused to do so, does not mean that the Magistrate cannot allow the accused to give his evidence on affidavit by applying the same analogy unless there is just and reasonable ground to refuse such permission. There is no express bar on the accused to give evidence on affidavit either in the Act or in the Code..... I find no justified reason to refuse permission to the accused to give his evidence on affidavit subject to the provisions contained in sections 315 and 316 of the Code."

 

What therefore emerges in the above context is that even a cursory perusal of Section 143-145 of NI Act reflect, that whereas, the legislature has provided for the complainant to give his evidence on affidavit, but no corresponding provision is carved out for the accused to do so. Therefore, any inference, that non- mentioning of the accused along with the complainant in sub-section (1) of section 145 for the purpose of entitlement to file evidence affidavit could be merely an omission by the legislature shall be far -fetched. What therefore follows is that if the legislature has not deemed it proper to incorporate the word `accused' with the word `complainant' in section 145(1), the same cannot be read as if even the “accused” shall be deemed to be part of it. Thus, what is explicit can only be given effect to. The case of the complainant in a complaint under section 138 of the Act shall be based on documentary evidence. The accused, it is observed, more oftenly, does not opt even to lead any defence evidence and let the prosecution stand or fall on its own evidence. Even otherwise, in case, the accused opted to lead defence evidence, the nature of its evidence may not be necessarily documentary and it may be such other evidence with a view to rebut the presumption that the issuance of the cheque was not in the discharge of any debt or liability. Hence, the basic difference between the nature of the complainant's evidence and the evidence of the accused in a case of dishonoured cheque has to be contextually understood.

 

The Bombay High Court in SBI Global Factors Limited  (Supra)  has held in view of above settled position of law, that accused/respondent cannot be permitted to file an Affidavit-of-Evidence in-lieu of Examination-in-Chief. The evidence of accused i.e. Affidavit of Evidence in lieu of Examination-in-Chief was thus discarded from record.

2.      That the Karnataka High Court in a matter captioned as  MRS. ZAHEDA INAMDHAR  Vs DR. FATIMA HASSINA SAYEEDHA WRIT PETITION No.3519 OF 2024 (GM – RES) after taking note of Mandvi Co-op. Bank Ltd. (Supra) has held on similar line.

3.      That the Delhi High Court in a matter captioned as MAA TARINI INDUSTRIES LTD. & ANR. Versus PEC LIMITED CRL.M.C. 254/2020 after following Mandvi Co-Operative (Supra) has held as under:

 

18. The provisions of Sections 142 to 147 lay down a Special Code for the trial of offences under the Chapter XVII of the N.I. Act. While considering the scope and ambit of the amended provisions of the Act, the Supreme Court in Mandvi Co. Op. Bank Ltd. v. Nimesh B. Thakore , AIR 2010 SC 1402, has held that the provisions of Sections 143, 144, 145 and 147 expressly depart from and override the provisions of the Cr.PC, the main body of adjective law for criminal trials. The Supreme Court has further held as under:-

"17. It is not difficult to see that sections 142 to 147 lay down a kind of a special code for the trial of offences under Chapter XVII of the Negotiable Instruments Act and sections 143 to 147 were inserted in the Act by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002 to do away with all the stages and processes in a regular criminal trial that normally cause inordinate delay in its conclusion and to make the trial procedure as expeditious as possible without in any way compromising on the right of the accused for a fair trial."

 

The aforesaid discussion shall categorically and discerningly reflect that in cheque bouncing cases u/s 138 of Negotiable Instruments Act, there has been no provision even u/s 143-145 of the said Act that accused shall be entitled to file evidence affidavit, whereas the said prescription is clearly made out for the complainant and the complainant can be cross examined on the basis of their evidence affidavit and documents, in a rebuttal by the accused in order to shift the onus back on complainant and to shift the onus u/s 139 of NI Act , in case the accused succeeds in raising tangible rebuttal. However, there is no mechanism in law for the accused in the cases u/s 138 of Negotiable Instruments Act to file evidence affidavit, unlike the complainant. Moreover, even if Section 315 of Cr.PC is taken note of, the accused can lead his evidence as defence witness, if the accused opted to do so. The accused cannot be compelled to do so. In any case, after Mandvi Co-operative (Supra) judgment rendered by the hon’ble Supreme Court, the issue is well settled i.e the accused cannot file evidence affidavit by way of defence evidence in complaints u/s 138 of Negotiable Instruments Act and rebuttal option is available to the accused by way of cross examination of complainant witness and even through defence witness, other than the accused himself, unless, the accused himself also wanted to be examined. The inference therefore is that no affidavit by way of evidence can be filed by the accused in such cases, having been clearly excluded by implication in terms of Section 145 of Negotiable Instruments Act, wherein, the filing of affidavit relates to, by the complainant only.

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                          Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com

IBC 2016: SECTION 4 & THRESHOLD LIMIT U/S 9 FILED BY OPERATIONAL CREDITOR

 

IBC 2016: Section 4 & Threshold limit u/s 9 filed by Operational Creditor

The Insolvency & Bankruptcy Code (IBC) 2016 and is referred to as “Code” in short) was enacted with a view to accord a comprehensive legal framework for matters relating to affairs of company, its probable rehabilitation or for dissolution of the corporate debtor company, as the case may be for overall good. The underlying object of the Code is to accord viability and fillip to a company which is otherwise sick and only in case a company is found to be unviable, then, the process of dissolution as per the scheme of the Code may begin.  The Rule 6 of the I & B (Application to Adjudicating Authority) Rules 2016 relates inter alia to initiate Corporate Insolvency Resolution Process (CIRP) against a Corporate Debtor (CD) company, on the ground that the Corporate Debtor has committed a default for admitted outstanding amount of more than 1,00,00,000/- ( Rupees, One Crore Only) or more, since the said amount is fixed as a threshold for preferring application before the National Company Law Tribunal (NCLT) by the Operational Creditor (OC) under the aforesaid provisions. Whether the threshold limit of Rs 1,00,00,000/- shall comprise of principal or shall include interest in it or not shall be yet another dimension The NCLT, Bengaluru in a matter captioned as M/s J.R Metal Chennai Ltd Versus M/s NUDPL Ventures Pvt Ltd bearing no. CP (IB) No.32/BB/2022 has dealt with it.

The gravamen of dispute in   M/s J.R Metal Chennai Ltd (Supra) is not being deliberated herein, since, the purpose of the present write up herein, is only to deliberate, on the issue raised above i.e whether for computing a threshold limit of Rs 1 Crore under the IBC by Operational Creditor (OC), whether a sum of Rs 1 Crore shall be arrived at after including interest.

To reiterate, for an application to be filed under Section 9 of IBC, the minimum threshold limits should be Rupees one crore of the Principal amount vide Notification No. 1076 dated 24.03.2020, to trigger Corporate Insolvency Resolution Process under Section 4 of the Insolvency and Bankruptcy Code, 2016. In order to satisfy the minimum threshold of Rs One Crore, the applicant cannot club interest amount to the Principal Amount, and thereby, reach the alleged due amount of rupees one crore only with a view to trigger Corporate Insolvency Resolution Process (CIRP) application as per section 4 of IBC.

The National Company Law Appellate Tribunal (NCLAT) in the matter of Amsons Communication Pvt Ltd Vs. ATS Estates Pvt Ltd, Company Appeal (AT) (Insolvency) No. 540 of 2020, vide order dated 17.01.2022 wherein it is held that claim of interest being a disputed fact by the Corporate Debtor, can be adjudicated only by the court of competent jurisdiction and that the provision of IBC cannot be used for recovery of claim.

The various provisions of the IBC may be deliberated and certain principals laid down by the Hon’ble Supreme Court and NCLAT in this regard needs perusal.

(I) The definition for “Financial Debt” and “Operational Debt” as enumerated in the IBC is as follows:

 

a. Sec 5 (8) “financial debt” means a debt along with interest, if any, which is disbursed against the consideration for time value of money and includes […]

 

b. Sec 8 (21) “operational debt” means a claim in respect of the provision of goods or services including employment or a debt in respect of the [payment] of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority.

 

Thus, financial and operational debt has been defined differently under IBC. It may be noted that definition of operational debt does not deal with interest, whereas financial debt includes interest as well.

 

(II) It is pertinent to note that the distinction in the treatment of “financial debt” and operational debt has been dealt in detail in the case of “ Swiss Ribbons(p) Ltd. V. Union of India” AIR 2019 Supreme Court  739, but the component of “ interest” is not explicitly dealt with.

 

(III) It is relevant to point out that, there is no concept of “time value of money” for a debt to qualify as an “operational debt”. Interest is not necessary for an operational debt, as there, the consideration is the value of the goods or services availed by the corporate debtor from the operational creditor. The interest that is charged for the delayed payment is in the form of penalty and not a return on investment.

 

Since under the IBC only admitted claim shall form part of the application, hence, if in purchase order or agreement, there is no provision of interest and its rate is not specified as admitted in case of default, no interest probably could be included by the Operational Creditor (OC) for initiating CIRP. Therefore, solely, for the purpose of meeting the requirement of section 4 of the Code, sums relating to interest cannot be clubbed with the principal, if the same is not provided for in the Agreement between the two parties. Therefore, with a view to meet the requirement of section 4 of the Code, the interest, which is otherwise not provided for in the Agreement between the two parties cannot be integrated in the claim and that too, only  with a view to meet the threshold limit stipulated under section 4 of the Code.

To conclude, “operational debt” and “financial debt” are treated differently in the IBC (Code). Whereas, in “financial debt” the component of interest is inbuilt, but the same is not so, in case of “operational debt”. Thus, merely with a view to meet the threshold of Rs 1 Crore, in order to be enable operational creditor to prefer a case before NCLT, under the IBC 2016 as Operational Creditor, the component of interest cannot form part of it, if the threshold is otherwise not reached. As the disputed claim cannot be adjudicated by the NCLT and the same shall have to be adjudicated by civil courts only, therefore, only, if the claim of interest is inbuilt in agreement and/or purchase order and in case of default, the interest is found to be payable as per the written understanding and no dispute is raised in this regard, only then, probably the component of interest may form part of the “operational debt” and not otherwise. Thus, generally speaking, in operational debt, in case of application preferred by operational creditor, before the NCLT under the Code, the claim of interest shall not form part of operational debt 

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                                  Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com

 

 

SECTION 25(3) OF CONTRACT ACT & SECTION 18 LIMITATION ACT INTERPLAY

 

Section 25(3) of Contract Act & SECTION 18 Limitation Act INTERPLAY

An interesting issue related to interplay of Section 18 of Limitation Act and Section 25(3) of Indian Contract Act (ICA) was raised before Delhi High Court in a matter captioned as Rajeev Kumar Vs The State NCT Of Delhi & Anr bearing no. CRL.L.P. 212/2021 and decided on 9^th August 2024. The issue was raised in a complaint u/s 138 of Negotiable Instruments Act (NI Act). The Criminal Leave Petition was filed under Section 378(4) read with Section 482 of The Code of Criminal Procedure, 1973 ('CrPC') by the appellant , thereby, seeking setting aside of order dated 31st July 2021 ('impugned order') passed by ld MM/NI Act-03/Central/ Delhi in CC No. 510085/2016 titled as 'Rajeev Kumar v Satish Kumar', wherein the Trial Court had dismissed the complaint of appellant and acquitted respondent no.2 for the offence under section 138 of The Negotiable Instruments Act, 1881 ('NI Act'). The Leave to appeal was granted by the Delhi High Court.

FACTS OF THE COMPLAINT

(1 The father of the complaint and accused were colleagues, working in the same bank and branch, and as the accused was in need of money, the father of the complainant had thus lent interest free loan of Rs. 3,50,000/- to the accused in about October 2011. The accused in discharge of its liability, had issued a cheque for a sum of Rs. 3,50,000/- in the name of the father of the complainant in January 2014, as refund of the loan amount. However, subsequently, the father of the complainant passed away in July 2014, before presenting the cheque for encashment, after which accused issued a new cheque bearing No. 201465 dated 31st December 2015 for a sum of Rs. 3,50,000/- ('the cheque in question') in the name of the complainant for repayment of the loan amount. The cheque in question, on presentation, was dishonoured twice with the remarks "funds insufficient" vide separate return memos dated 3^rd March 2016 and 9^th March 2016. Thereafter, pursuant to legal notice dated 15^th March 2016, the said complaint was lodged under section 138 of Negotiable Instruments Act.  Pre-summoning evidence was led and upon finding a prima facie case against the accused, the accused was summoned vide order dated 27th April 2016.

(2) However, the Metropolitan Magistrate ('MM') had dismissed the complaint vide the impugned order and acquitted the accused of the offence under section 138 of NI Act as it was held that in the present case, the debt was not legally recoverable due to limitation.

(3) The relevant observation made by the Metropolitan Magistrate, is reproduced hereunder:

"41. Accordingly, the Court is in agreement with the accused for by way of the present cheque, the complainant is seeking to recover a debt which was no longer legally recoverable on the date of issuance of cheque as it was barred by the law of limitation and the cheque in question did not extend the period of limitation under section 18 of the Limitation Act, 1963."

(4) The ld Magistrate after considering the evidence on record has held that the loan partly stood paid by accused on the date of issuance of the cheque to the complainant, as payments of Rs. 2,55,000/- and Rs. 20,000/- from the account of the accused, into the account of the father of the complainant (during his lifetime) and the complainant respectively, stood proved by the accused.

(5) The appellant had preferred the petition before the Delhi High Court against the impugned order.

CONTENTIONS OF APPELALNT

(i)          The cheque in question was issued by respondent no.2 to the appellant after arriving at an oral and mutual settlement. The said settlement was arrived at after approximately Seventeen (17) months from his father's demise and as such, respondent no.2, had, duly accepted the legal liability on his part.

(ii)        The testimony of respondent no.2 was inconsistent and contradictory. While notice was being framed, under section 251 of CrPC and also in application under section 145(2) of NI Act, respondent no.2 had accepted that a loan from the father of the appellant was taken by him and he had given a cheque of the same amount to the appellant's father. After the demise of the appellant's father, it was duly admitted that another cheque of the same amount was given to the appellant, in exchange for the cheque given by him earlier to appellant's father. It was also contended that out of Rs. 3,50,000/-, respondent no.2 had already paid Rs. 2,75,000/- collectively to appellant and his late father and only Rs. 75,000/- was left to be paid.

(iii)       The respondent no.2 failed to establish that the record of bank transactions from 1^st September 2012 to 5^th June 2014 were payments towards the loan. In fact, these transactions related to a different liability as being colleagues and working in the same branch and bank, respondent no.2 and the late father of appellant were good friends and appellant's father used to monetarily help respondent no.2 on several occasions.

(iv)       The complaint was filed well within its time, as respondent no.2 himself admitted that he issued the cheque in question to the late father of appellant five to six months before his death i.e. in the month of January or February of 2014, which does not make it a time-barred debt as the complaint was made on 12^th April 2016.

However, just in contrast, at the time of his examination in chief and during cross-examination, respondent no.2 had stated that he paid the entire amount collectively to the appellant and his late father and the cheque in question was given in exchange for the first cheque to resolve the 'family dispute' of appellant. The respondent no.2 further contended that the cheque in question was issued in exchange of cheque already handed over to the late father of appellant, in order to resolve a 'family dispute' in the appellant's family at that time.

                          SUBMISSIONS OF RESPONDENT NO.2

(i)          The appellant never gave any loan amount to respondent no.2 and states that there was no agreement executed between appellant and respondent no.2 regarding the new security cheque. Moreover, no date, month or year has been mentioned in the complaint by the appellant in respect of any loan given by the appellant to respondent no.2.

(ii)        The appellant in his cross-examination admitted that respondent no.2 had not taken any amount from the appellant in respect of the cheque in question. The photocopies of cash deposit slips that were brought on record by respondent no.2, to show the banking transactions done by respondent no.2 to discharge his liability towards the loan, remained unchallenged by the appellant. These receipts dated 1st May 2012, 7th June 2012, 31st July 2012 and 3rd October 2012 are issued against the payment of Rs. 15,000/-, Rs. 10,000/-, Rs. 10,000/- and Rs. 10,000/- respectively, in favour of Late Mr. Narain Dass, father of the appellant and by way of these receipts, a proof of repayment of Rs. 45,000/- to the father of the appellant, during his lifetime, is established.

(iii)       The Respondent no.2 has further brought on record statement of accounts of the appellant w.e.f. 1st November 2012 till 28th August 2014, and of Late Mr. Narain Dass w.e.f. 1st May 2012 till 30th June 2014 for Rs. 2,10,000/-, and during cross-examination of respondent no.2, the said payments remained unchallenged by the appellant.

A further plea was taken at a belated stage that as the loan taken by respondent no.2 in the month of October 2011 from the father of the appellant and the cheque in question is dated 31^st December 2015, which makes it a time-barred debt.

 

ANALYSIS

The high court upon scrutiny of evidence was of the view that the acquittal of the accused/respondent no.2 was not merited inter alia sue to the following reasons:

(i)           The testimony of the accused itself, ex facie was not believable and was inherently contradictory. On the one hand the accused states in its examination by way of chief that he had taken a loan of Rs.3,50,000/- from the father of the complainant in October 2011 and then states that he repaid the amount of Rs. 2,55,000/- in the period of May 2012 to June 2014 in his bank account.

(ii)        The contention of respondent no.2 is that, this would amount to extinguishment of his debt liability to the extent of Rs. 2,55,000/- and would leave a repayment obligation of Rs. 95,000/- at best. However, it is again stated by him, that he gave a security cheque of Rs. 3,50,000/- as demanded by the father of the complainant due to some 'family dispute'.

(iii)      The respondent no.2 was a bank official and hence it is inconceivable that these transactions were happening without any documentation and secondly, there was no reason for furnishing a 'security cheque' if the father of complainant had a 'family dispute'. Moreover, if the respondent wanted to help his colleague i.e. the father of the complainant, he could have stated that a temporary loan was extended by him, having already extinguished his liability to the extent of Rs. 2,55,000/- earlier. The circumstances in which the 'security cheque' of Rs. 3,50,000/- was given to the father of the complainant is quite specious and unworthy of trust.

(iv)       After the demise of the father of the complainant in July 2014, the respondent no.2 states that he transferred an amount of Rs. 20,000/- in the account of the complainant and paid the remaining amount by cash in installments. This is contrary to the assertion of the respondent no.2 that he had no liability towards the father of the complainant, except for outstanding liability of Rs. 95,000/-.

(v)        Even if it is assumed that there were transfers of amounts to the complainant in order to extinguish the liability towards the father, but then it is without reason as to why subsequently, a fresh cheque (the one which got dishonoured) was again given in the sum of Rs.3,50,000/. The assertion of respondent no.2 in his testimony that he replaced the earlier 'security cheque to the father' with a new 'security cheque to the complainant' seems to be a contradictory plea and ex facie untenable and inconceivable.

(vi)      Why a 'security cheque' shall be given to a person, by somebody, who was a bank official and extremely aware of the consequences of the same is unexplained. Moreover, in his cross-examination, the respondent no.2 further states that he paid Rs. 75,000/- to the complainant, post the demise of his father, in addition to Rs. 20,000/-. Assuming, therefore, he had paid Rs. 95,000/- of the outstanding liability to the father, there can be no conceivable reason as to why he would furnish another cheque of Rs. 3,50,000/- to the complainant.

(vii)    That the extracts from the statement of account in the impugned order at para 22, detailing the transfer of money to the account of the father of Rs. 2,10,000/- and then to the complainant of Rs. 10,000/- after the death of the father cannot explain as to why a cheque of Rs. 3,50,000/- was given subsequently on 31^st December 2015. The father of the complainant having passed away, there was no way the complainant himself could explain as to why small driblets of Rs.10,000/- and Rs.20,000/- were being given to his father by the respondent no.2. It was submitted that due to the friendly relationship between the appellant's father and the respondent no.2, there could have been small advances which might have been given to each other in times of need. However, as per the jurisprudence under Section 138 of NI Act read with Sections 139 and 118 of the NI Act, where the presumption of liability is on the accused and it was not for the complainant to prove the liability. The reliance by the impugned order to the lack of proof furnished by the complainant in respect of these amounts, is unmerited.

(viii)  In para 27 of the impugned order, the Trial Court states, "However, the complainant has nowhere furnished any material on record suggesting that there was another liability apart from the present one. The complainant has not brought on record the fact of any liability of the accused towards the complainant or his father, apart from the present one, against which the payment by way of account transfer is supposedly received."

(ix)      The plea of 'time bar', in that the cheque was issued on 31^st   December 2015, after four years of the disbursement of loan in October 2011, is also incorrectly analyzed by the Trial Court. The concept relating to limitation in situations of Section 138 of NI Act is that the furnishing of the cheque/negotiable instrument in itself invites a presumption of liability. The liability even if of a previous period, gets revived, due to the furnishing of the cheque, acknowledging therefore, that the repayment is to take place.

(x)        The law relating to a time-barred debt and the revival by virtue of furnishing a cheque by the drawer, is well settled. This is based upon the concept that a promise to pay wholly or in part a debt which cannot be enforced by the creditor being barred by the law of limitation, is a valid agreement, if it is made in writing and signed by the person. This is encapsulated in Section 25(3) of the Indian Contract Act, 1872 ('the ICA') which when read along with Illustration (e), crystallizes the concept clearly.

The Section 25(3) of Indian Contract Act is extracted as under:

"25. Agreement without consideration void, unless it is in writing and registered, or is a promise to compensate for something done, or is a promise to pay a debt barred by limitation law.

--An agreement made without consideration is void, unless—

... (3) it is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorised in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits. ...

(e) A owes B Rs. 1,000, but the debt is barred by the Limitation Act. A signs a written promise to pay B Rs. 500 on account of the debt. This is a contract."

The Division Bench of Kerala High Court in Dr. K.K. Ramakrishnan v Dr. K.K. Parthasaradhy & Anr. 2003 SCC OnLine Ker 420 in dealing with a similar issue stated as under:

“According to the appellant the Section 25(3) of the Contract Act cannot be invoked to interpret the provisions of Section 138 of the Negotiable Instruments Act. However, the high court has held that the said contention cannot be accepted. Section 138 provides for a penalty in a case where a cheque is dishonoured on account of insufficiency of funds. The cheque has to be by way of payment of a "legally enforceable debt or a liability". The liability may arise out of a contract or otherwise. Thus, to determine as to whether or not a liability is legally enforceable, the provisions of the Contract Act cannot be said to be irrelevant. These can provides a cause for a legal liability. Resultantly, when a person writes a cheque and delivers it to a person, the drawee not only gets the civil right to present the cheque and recover the amount, but in the event of the cheque being dishonoured the person who has issued the cheque becomes liable for prosecution under Section 138.

To invoke Section 18 of the Limitation Act, the acknowledgement has to be made before the expiry of the period of limitation. The high court had observed that under Section 25(3), a promise can be made even in a case, where the limitation for recovery of the amount has already expired. Such a promise has to be in writing. It can be in the form of a cheque. When a cheque is delivered to the payee, the person is entitled to present the cheque to the bank and seek payment. In such an event, if the cheque is dishonoured, the liability under Section 138 would arise. It would not be permissible for the accused to contend that the liability was not legally enforceable.

Section 4 of the Negotiable Instruments Act  defines “Cheque” as a "bill of exchange” drawn on a specified banker and not expressed to be payable otherwise than on demand". Cheque thus carries a promise implicitly, unlike a pro-note where the promise is explicit and mandatory. Thus., limitation shall have to be reckoned from the date the cheque and not on the fact 'whether the cheque was honoured or dishonoured'. Under the Negotiable Instruments Act, the issuance of cheque is to be presumed to be issued for discharge of debt. The consequence event whether the said cheque on presentation honoured or not, is immaterial. Thus, even if said cheque is not presented in time and become stale, but it is proved that the cheque was issued with intention to discharge the debt or part of the debt then, the limitation may have to be reckoned from the date of the cheque considering the cheque as acknowledgment of debt. The cheque in the name of the complainant gives him the cause of action to sue and suit being filed within 3 years from the date on which the cheque bear, this prima facie saves the limitation. A  plaintiff cannot be de-suited on the plea of limitation.

A priori the cheque itself becomes a promise made in writing signed by the person to pay wholly or in part debt, which otherwise, may not be payable due to law of limitation. Per section 25(3) of the ICA, this would be an agreement in itself. Section 139 presumption under the NI Act which presumes that the cheque is in discharge in whole or part liability of any debt or liability would therefore, actually come into play. The contrary position of the accused that no debt or liability subsists having extinguished by the law of limitation, would be then unmerited and untenable, since a fresh agreement comes into operation by the tendering of the cheque. By issuing the cheque, the drawer is acknowledging a legally enforceable liability and he ought not be entitled to claim that the debt had become barred by limitation.

There can be an argument that even though section 25(3) of the ICA creates a contractual promise to pay, a civil suit could subsist for enforcing that promise but a penal provision under section 138 of NI Act cannot be invoked basis the explanation to Section 138 which restricts "debt or liability" to "legally enforceable debt or liability." Regarding the facts of the case in question, the presentation of the cheque to the father was 5-6 months before the death of his father i.e. in the months of January/February 2014. On that basis, even though the loan was allegedly taken in 2012 as per the finding of the Trial Court, the earlier cheque presented in 2014 would amount to an acknowledgment in writing of the liability and therefore, a fresh period of limitation would commence as per section 18 of The Limitation Act, 1963. Therefore, the furnishing of the cheque in question on 31^st December 2015, would still be for a legally enforceable debt or liability. This is notwithstanding the other aspect, which had been pleaded by the appellant, that he had an oral settlement post the death of the father with the accused.

Mere giving a cheque, without anything more, will not revive a barred debt, because cheque has to be given, as contemplated by the explanatory in discharge of a legally enforceable debt. There is no doubt that in terms of the Indian Limitation Act, 1963, a signed acknowledgment of liability made in writing before the expiration of the period of limitation, is enough to start a fresh period of limitation. Likewise, when a debt has become barred by limitation, there is also section 25(3) of the Contract Act, by which, a written promise to pay, furnishes a fresh cause of action. In other words, what Clause (3) of section 25 of the Indian Contract Act in substance does is not to revive a dead right, for the right is never dead at any time, but to resuscitate the remedy to enforce payment by suit, and if the payment could be enforced by a suit, it means that it still has the character of legally enforceable debt as contemplated by the explanation below section 138 of the Act. As far as this aspect of the case is concerned, the learned Division Bench observed that to determine as to whether or not a liability is legally enforceable, the provisions of the Contract Act cannot be said to be irrelevant. This can provide a cause for a legal liability. Although the primary question answered by the Division Bench was that a cheque becomes a promise to pay under section 25(3) of the Contract Act. Nevertheless, the Division Bench Judgment is relevant to the extent that it holds that a promise to pay in writing as per section 25(3) of the Indian Contract Act, 1872, matures into an enforceable contract, which can be enforced by filing a Civil Suit. If a suit could be filed pursuant to a promise made in writing and signed by the person to be charged therewith, as contemplated by Clause (3) of section 25 of the law of Contract, then, the high court held in Rajeev Kumar (Supra) that the debt becomes legally enforceable and if a cheque is given in payment of such debt is dishonoured and subsequently, the statutory notice is not complied with, then the person making the promise in writing and issuing the cheque, would still be liable to be punished under section 138 of the Act.".

RESURRECTION OF TIME BARRED DEBT

The furnishing of a cheque of a time-barred debt effectively resurrects the debt itself by a fresh agreement through the deeming provision under section 25(3) of ICA. The original debt therefore, through section 25(3) of the ICA, becomes legally enforceable to the extent of the amount the cheque has been given. This resonates also with practical considerations. Persons who have chosen to escape liability, can draw a cheque, in order to clear an earlier debt upon persuasion by the creditor. By the act of drawing a cheque, the promisor i.e. the drawer, is effectively stating that he has a liability to pay the drawee. Drawing of the cheque in itself, is acknowledgment of a debt or liability. It is the resurrection or the revival of the prior debt which would trigger the provisions under section 138 of NI Act.

It was thus held in Rajeev Kumar (Supra) that to deny a complainant/drawee of invoking the penal provisions under section 138 of NI Act, despite the categorical premise of section 25(3) of the ICA recognizing a fresh agreement to pay, would be an unfortunate disentitlement.

In view of above, impugned order whereby the respondent no. 2 was acquitted was set aside by the high court.

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                                   Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com