WRIT PETITION AND SECURITIZATION ACT: MAINTAINABILITY

 

 

Writ Petition and Securitization act: Maintainability

 

A Three (3) Judge bench of Supreme Court in a most recent judgment reported as. 2024 INSC 297 and captioned as PHR INVENT EDUCATIONAL SOCIETY VERSUS UCO BANK AND OTHERS has recently emphatically reiterated and laid down law in respect of maintainability of writ petition under Article 226 of Constitution of India for matters arising out of the Securitisation and reconstruction of Financial Assets FINANCIAL and Enforcement of Security Interest act 2002 (In short SARFAESI Act).

Section 17 of the SARFAESI Act is a comprehensive Act and it clearly provides that any aggrieved person, including borrower , who is aggrieved because of the action of Secured creditor action of secured creditor under Section 13 (4) of the SARFAESI Act, may approach Debt Recovery Tribunal (DRT) by way of an application and as such in the face of clear remedy available to an aggrieved party and since the Tribunal exercises wide jurisdiction under Section 17 of the SARFAESI Act, in as much as , even power of setting aside an auction sale. That being so, writ petition, being extra-ordinary in nature shall not lie.

The iteration of facts of PHR INVENT (Supra) in brief, may be relevant in its context.

(1)The Borrower had availed of a loan from the Respondent- Bank and had mortgaged four properties as collateral security. As the Borrower defaulted in the repayment of the loan amount, thus, the Respondent-Bank had initiated proceedings against the borrower under the SARFAESI Act.

(2) Auction notice was issued for auctioning off the mortgaged properties and publication by way of auction sale was carried out and date of auction was notified.

(3) The borrower , aggrieved by the Auction Sale Notice, preferred a securitization application before Debt Recovery Tribunal (DRT) under Section 17 of the SARFAESI Act, thereby praying for setting aside of the same.

(4) In the meanwhile, the auction was conducted and the PHR Invent Educational Society and was declared as the highest bidder and 25% of bid amount inclusive of earnest money was duly deposited. The fact remains that the Borrower did not deposit the amount.

(5) On the same day, DRT passed an interim order in S.A. No. 1476 of 2017, thereby refusing to interfere with the sale of the scheduled/mortgaged properties which was to be conducted on that very day. The Borrower had also filed an interlocutory application, praying for stay of further proceedings qua the auction of the scheduled properties, wherein DRT directed the Respondent-Bank not to confirm the sale of the scheduled properties subject to the Borrower depositing 30% of the outstanding dues as claimed for in the Auction Sale Notice in two equal installments. The first installment of 15% amount was to be deposited within a week from the date of the said order, and the second installment of 15% amount was to be

deposited within two weeks thereafter. The DRT further directed that, in the event that the Borrower failed to make the aforesaid deposits, the interim stay would stand vacated and the Respondent-Bank would be at liberty to confirm the sale in favor of the highest bidder, although the sale itself was made subject to the final outcome in S.A. No. 1476 of 2017.

(6) Subsequently, the PHR Invent Educational Society  (appellant) deposited the balance auction price.

(7) In the meanwhile, the Borrower proposed One Time Settlement (‘OTS’) for all the outstanding loan accounts. However, the Respondent-Bank refused to accept the same and requested the Borrower to settle all the outstanding loan accounts with interest payable at the contractual rate, as applicable thereon.

(8) The DRT passed an order dated 21^st September 2020, whereby S.A. No. 1476 of 2017 was dismissed as withdrawn at the behest of the Borrower who submitted that the matter had been settled out of court. On the other hand, the Respondent-Bank filed a Memo of Non- Settlement before DRT thereby informing that no such out-of court settlement had been reached.

(9) Upon S.A. No. 1476 of 2017 being dismissed as withdrawn, the Respondent-Bank confirmed the sale of the scheduled properties in favor of the appellant herein. A Sale Certificate was issued by the Respondent-Bank and the possession of the scheduled properties was accordingly delivered to the appellant Subsequently and the Sale Certificate came to be registered in favor of the appellant herein.

(10) The Borrower preferred M.A. No. 97 of 2020 in S.A. No. 1476 of 2017 before DRT, praying for the restoration of S.A. No. 1476 of 2017 to the file and setting aside the aforesaid order of DRT dated 21st September 2020. However, on 2nd February 2021, DRT passed an order, thereby, dismissing the said M.A. filed by the Borrower.

 

In the above backdrop, the Borrower had filed a writ petition before the High Court. The High Court, by the impugned order, disposed of the said writ petition, thereby setting aside the order of DRT, and further directing it to proceed with S.A. No. 1476 of 2017 in accordance with law. The M.A. No. 97 of 2020 in S.A. No. 1476 of 2017 was thus allowed restoring S.A. No. 1476 of 2017.

The Auction Purchaser, had approached Supreme Court.

 

The Supreme Court has perused and reiterated catena of its own judgments. It is held that, it is a settled proposition in law that when alternate remedy is available writ petition shall generally not lie as is held in the following judgments:

(1) United Bank of India v. Satyawati Tondon and Others 2010) 8 SCC 110 : 2010 INSC 428

(2) Celir LLP v. Bafna Motors (Mumbai) Private Limited and Others (2024) 2 SCC 1 : 2023 INSC 838

(3)  South Indian Bank Limited and Others v. Naveen Mathew Philip and Another  2023 SCC OnLine SC 435 : 2023 INSC 379

 

However, it is also argued to the contrary that the rule is not inflexible, in as much as, non interference under article 226 of Constitution of India is a rule of self-restraint and in deserving cases, the High Court is not precluded from entertaining a petition under Article 226 of the Constitution in order to do justice to the parties as is held in State of U.P. v. Mohammad Nooh AIR 1958 SC 86 : 1957 INSC 81.

The Supreme Court has consistently held that the High Court will ordinarily not entertain a petition under Article 226 of the Constitution, if an effective remedy is available to the aggrieved person. It has been held that this rule applies with greater rigour in matters involving recovery of taxes, cess, fees, other types of public money and the dues of banks and other financial institutions. The Court clearly observed that, while dealing with the petitions involving challenge to the action taken for recovery of the public dues, etc., It is further observed by the Supreme Court that the High Court must keep in mind that the legislations enacted by Parliament and State Legislatures for recovery of such dues are a code unto themselves, inasmuch, as they not only contain comprehensive procedure for recovery of the dues but also envisage constitution of quasi-judicial bodies for redressal of the grievance of any aggrieved person. It has been held that, though the powers of the High Court under Article 226 of the Constitution are of widest amplitude, still the Courts cannot be oblivious of the rules of self-imposed restraint evolved by this Court. The Supreme Court further held that though the rule of exhaustion of alternative remedy is a rule of discretion and not one of compulsion, still it is difficult to fathom any reason as to why the High Court should entertain a petition filed under Article 226 of the Constitution. This is followed in Agarwal Tracom Private` Limited v. Punjab National Bank and Others  (2018) 1 SCC 626 : 2017 INSC 1146.

The Supreme Court has held in PHR INVENT EDUCATIONAL SOCIETY  (Supra) as under:

14. The law with regard to entertaining a petition under Article 226 of the Constitution in case of availability of alternative remedy is well settled. In the case of Satyawati Tondon (supra), this Court observed thus:

“43. Unfortunately, the High Court overlooked the settled law that the High Court will ordinarily not entertain a petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person and that this rule applies with greater rigour in matters involving recovery of taxes, cess, fees, other types of public money and the dues of banks and other financial institutions. In our view, while dealing with the petitions involving challenge to the action taken for recovery of the public dues, etc. the High Court must keep in mind that the legislations enacted by Parliament and State Legislatures for recovery of such dues are a code unto themselves inasmuch as they not only contain comprehensive procedure for recovery of the dues but also envisage constitution of quasi-judicial bodies for redressal of the grievance of any aggrieved person. Therefore, in all such cases, the High Court must insist that before availing remedy under Article 226 of the Constitution, a person must exhaust the remedies available under the relevant statute’.

 

“44. While expressing the aforesaid view, we are conscious that the powers conferred upon the High Court under Article 226 of the Constitution to issue to any person or authority, including in appropriate cases, any Government, directions, orders or writs including the five prerogative writs for the enforcement of any of the rights conferred by Part III or for any other purpose are very wide and there is no express limitation on exercise of that power but, at the same time, we cannot be oblivious of the rules of self-imposed restraint evolved by this Court, which every High Court is bound to keep in view while exercising power under Article 226 of the Constitution”.

The Supreme Court in the case of Authorized Officer, State Bank of Travancore and Another v. Mathew K.C. (2018) 3 SCC 85 : 2018 INSC 71  While considering an appeal against an interim order passed by the High Court in a writ petition under Article 226 of the Constitution, staying further proceedings at the stage of Section 13(4) of the SARFAESI Act. After considering various judgments rendered by the Supreme Court, the Supreme Court observed thus:

“16. The writ petition ought not to have been entertained and the interim order granted for the mere asking without assigning special reasons, and that too without even granting opportunity to the appellant to contest the maintainability of the writ petition and failure to notice the subsequent developments in the interregnum. The opinion of the Division Bench that the counter-affidavit having subsequently been filed, stay/modification could be sought of the interim order cannot be considered sufficient justification to have declined interference.”

 

It will be relevant to refer to the following observations of Supreme Court in the case of Commissioner of Income Tax and Others v. Chhabil Dass Agarwal (2014) 1 SCC 603:

 

15. Thus, while it can be said that this Court has recognised some  exceptions to the rule of alternative remedy i.e. where the statutory authority has not acted in accordance with the provisions of the enactment in question, or in defiance of the fundamental principles of judicial procedure, or has resorted to invoke the provisions which are repealed, or when an order has been passed in total violation of the principles of natural justice, the proposition laid down in Thansingh Nathmal case [AIR 1964 SC1419] , Titaghur Paper Mills case [Titaghur Paper Mills Co. Ltd. v. State of Orissa, (1983) 2 SCC 433 : 1983 SCC (Tax) 131] and other similar judgments that the High Court will not entertain a petition under Article 226 of the Constitution if an effective alternative remedy is available to the aggrieved person or the statute under which the action complained of has been taken itself contains a mechanism for redressal of grievance still holds the field. Therefore, when a statutory forum is created by law for redressal of grievances, a writ petition should not be entertained ignoring the statutory dispensation.”

 

The Supreme Court, in the case of Dwarika Prasad v. State of Uttar Pradesh and Others (2018) 5 SCC 491 : 2018 INSC 210  has clearly held that the right of redemption stands extinguished on the execution of the registered sale deed and allegation of fraud, if properly dealt with earlier cannot be re-opened.

The Supreme Court, therefore, in PHR INVENT EDUCATIONAL SOCIETY (Supra) has concluded as under:

29. It could thus clearly be seen that the Court has carved out certain exceptions when a petition under Article 226 of the Constitution could be entertained in spite of availability of an alternative remedy. Some of them are thus:

(i) where the statutory authority has not acted in accordance with the provisions of the enactment in question;

(ii) it has acted in defiance of the fundamental principles of judicial procedure;

(iii) it has resorted to invoke the provisions which are repealed; and

(iv) when an order has been passed in total violation of the principles of natural justice.

The appeal was allowed and impugned order passed by the High Court in favour of the borrower was set aside.

The basic rule, according to Supreme Court, therefore, is that the High Court will not entertain a petition under Article 226 of the Constitution if an effective alternative remedy is available to the aggrieved person or the statute under which the action complained of has been taken itself contains a mechanism for redressal of grievance. According to Supreme Court the High Court ought to have taken into consideration that the confirmed auction sale could have been interfered with only when there was a fraud or collusion. The present case was not a case of fraud or collusion. The effect of the order of the High Court would be again reopening the issues which have achieved finality.

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                                                Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com

SECTION 143-A NEGOTIABLE INSTRUMENTS ACT -SCOPE REDEFINED AND SETTLED

 

Section 143-A Negotiable Instruments Act -scope redefined and settled

 

In the backdrop of some ambiguity as regards the ambit of power and the circumstances under which a Metropolitan Magistrate or a judicial Magistrate could direct payment of interim compensation to the extent or upto 20% of cheque amount, the Supreme Court by virtue of a recent judgment captioned as RAKESH RANJAN SHRIVASTAVA Vs  THE STATE OF JHARKHAND & ANR CRIMINAL APPEAL NO. 741 OF 2024 : 2024 INSC 205 has laid down guidelines in this regard in categorical terms. Therefore, it is no longer doubtful if the power under section 143-A of the Negotiable Instruments act ( In short the “Act” or the “said Act”) is mandatory or directory. Though, there has been certain judgments pronounced before, but, yet some sort of ambiguity nevertheless persisted. It is no longer the case now.

In Rakesh Ranjan (Supra) the issues involved in the criminal appeal were as under:

(i)          whether the provision of sub-section (1) of Section 143A of the Negotiable Instruments Act, 1881 which provides for the grant of interim compensation, is directory or mandatory; And

(ii)        If it is held to be a directory provision, what are the factors to be considered while exercising powers under sub-section (1) of Section 143A of the N.I. Act.

Interestingly, in Rakesh Ranjan (Supra). The ld court of Magistrate had allowed the interim compensation of 20% of cheque amount to the complainant and the order was upheld by the ld Sessions Court in revision and it was also confirmed by the Jharkhand High Court. It is in that backdrop that, the matter reached Supreme Court.  

In fact, for many, earlier, the fallacy remained that once an accused plead not guilty, when the notice is framed under section 251 of Cr.P.C by a Magistrate, the payment of interim compensation of 20% of cheque amount is inbuilt and shall be  a necessary consequence for standing in trial.

To begin with and with a view of proper appreciation, the provision of Section 143-A of the said Act, which is inserted by virtue of Negotiable Instruments (Amendment) Act 2018 and w.e.f  01.09.2018. The same is reproduced as under:

“143-A. Power to direct interim compensation.—

(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), the Court trying an offence under Section 138 may order the drawer of the cheque to pay interim compensation to the complainant—

(a) in a summary trial or a summons case, where he pleads not guilty to the accusation made in the complaint; and

(b) in any other case, upon framing of charge.

(2) The interim compensation under sub-section (1) shall not exceed twenty per cent of the cheque amount.

(3) The interim compensation shall be paid within sixty days from the date of the order under sub-section (1), or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the drawer of the cheque.

(4) If the drawer of the cheque is acquitted, the Court shall direct the complainant to repay to the drawer the amount of interim compensation, with interest at the bank rate as published by the Reserve Bank of India, prevalent at the beginning of the relevant financial year, within sixty days from the date of the order, or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the complainant.

 

(5) The interim compensation payable under this section may be recovered as if it were a fine under Section 421 of the Code of Criminal Procedure, 1973 (2 of 1974).

(6) The amount of fine imposed under Section 138 or the amount of

compensation awarded under Section 357 of the Code of Criminal Procedure, 1973 (2 of 1974), shall be reduced by the amount paid or recovered as interim compensation under this section.”

Though, the object of the insertion of Section 143-A in the said Act was to dissuade unscrupulous drawers of the cheques prolong the proceedings of a complaint under Section 138 by filing appeals and obtaining a stay and also to safeguard and accord sanctity to cheque transactions.

It is relevant to also pin point that by the same Act No.20 of 2018, Section 148 was also brought on the statute book, which stipulates that in an appeal preferred by the drawer against conviction under Section 138, the Appellate Court, may order the appellant to deposit such a sum which shall be a minimum 20 per cent of the fine or compensation awarded by the Trial Court. The proviso to sub-section (1) of Section 148 clarifies that the amount payable under sub-section (1) of Section 148 is in addition to interim compensation paid by the appellant/accused under Section 143A. It is however worth noting that section 148 of the Act relates to appeal filed by a convict, whereas section 143-A of the Act relates to awarding of compensation in the trial proceedings itself.  

         

Whether power u/s 143-A is mandatory or directory?

The Supreme court has observed in Rakesh Ranjan (Supra) that though there is no doubt that the word “may” ordinarily does not mean “must”. Ordinarily, “may” will not be construed as “shall”. But this is not an inflexible rule. The use of the word “may” in certain legislation can be construed as “shall”, and the word “shall” can be construed as “may”. It all depends on the nature of the power conferred by the relevant provision of the statute and the effect of the exercise of the power. The legislative intent also plays a role in the interpretation of such provisions. Even the context in which the word “may” has been used is also relevant.

It is also observed by the Supreme Court that the power under sub-section (1) of Section 143A is to direct the payment of interim compensation in a summary trial or a summons case upon the recording of the plea of the accused that he was not guilty and, in other cases, upon framing of charge. As the maximum punishment under Section 138 of the N.I. Act is of imprisonment up to 2 years, in view of clause (w) read with clause (x) of Section 2 of the Code of Criminal Procedure, 1973 (for short, ‘the Cr.PC’), the cases under Section 138 of the N.I. Act are triable as summons cases. However, when at the commencement of the trial or during the course of a summary trial, it appears to the Court that a sentence of imprisonment for a term exceeding one year may have to be passed or for any other reason it is undesirable to try the case summarily, the case shall be tried in the manner provided by the CrPC. Therefore, the complaint under Section 138 becomes a summons case in such a contingency.

The Supreme Court has further observed in para 14 Rakesh Ranjan (Supra) that in the case of Section 143A, the power can be exercised even before the accused is held guilty. Sub-section (1) of Section 143A provides for passing a drastic order for payment of interim compensation against the accused in a complaint under Section 138, even before any adjudication is made on the guilt of the accused. The power can be exercised at the threshold even before the evidence is recorded. If the word ‘may’ is interpreted as ‘shall’, it will have drastic consequences as in every complaint under Section 138, the accused will have to pay interim compensation up to 20 per cent of the cheque amount. Such an interpretation will be unjust and contrary to the well-settled concept of fairness and justice. If such an interpretation is made, the provision may expose itself to the vice of manifest arbitrariness. The provision can be held to be violative of Article 14 of the Constitution. In a sense, sub section (1) of Section 143A provides for penalising an accused even before his guilt is established. Considering the drastic consequences of exercising the power under Section 143 A and that also before the finding of the guilt is recorded in the trial, the word “may” used in the provision cannot be construed as “shall”. The provision will have to be held as a directory and not mandatory.

Therefore, it is held that the word “may” used in Section 143A, cannot be construed or interpreted as “shall”. Therefore, the power under sub-section (1) of Section 143A is held to be discretionary.

The Supreme Court while dealing with sub-section (1) of Section 148 had observed Surinder Singh Deswal v. Virender Gandhi (2019) 11 SCC 341 that the word “may” used therein will have to be generally construed as “rule” or “shall”. It was further observed that when the Appellate Court decides not to direct the deposit by the accused, it must record the reasons. After considering the said decision in the case of Surinder Singh Deswal(Supra) ,the Supreme Court in the case of Jamboo Bhandari v. Madhya Pradesh State Industrial Development Corporation Limited & Ors. (2023) 10 SCC 446, in paragraph 6, held thus:

 

“6. What is held by this Court is that a purposive interpretation should be made of Section 148 NI Act. Hence, normally, the appellate court will be justified in imposing the condition of deposit as provided in Section 148. However, in a case where the appellate court is satisfied that the condition of deposit of 20% will be unjust or imposing such a condition will amount to deprivation of the right of appeal of the appellant, exception can be made for the reasons specifically recorded.”

 

Therefore, as per above, even u/s 148 of the said Act the appellate court shall have discretion in reducing or passing appropriate order as regards the pre-deposit.

The Supreme Court in para no. 19 of Rakesh Ranjan (Supra) has therefore concluded as under:

a. The exercise of power under sub-section (1) of Section 143 A is discretionary. The provision is directory and not mandatory. The word “may” used in the provision cannot be construed as “shall.”

b. While deciding the prayer made under Section 143 A, the Court must record brief reasons indicating consideration of all relevant factors.

c. The broad parameters for exercising the discretion under Section 143 A are as follows:

i. The Court will have to prima facie evaluate the merits of the case made out by the complainant and the merits of the defence pleaded by the accused in the reply to the application. The financial distress of the accused can also be a consideration.

ii. A direction to pay interim compensation can be issued, only if the complainant makes out a prima facie case.

iii. If the defence of the accused is found to be prima facie plausible, the Court may exercise discretion in refusing to grant interim compensation.

iv. If the Court concludes that a case is made out to grant interim compensation, it will also have to apply its mind to the quantum of interim compensation to be granted. While doing so, the Court will have to consider several factors such as the nature of the transaction, the relationship, if any, between the accused and the complainant, etc.

v. There could be several other relevant factors in the peculiar facts of a given case, which cannot be exhaustively stated. The parameters stated above are not exhaustive.

The Supreme Court has therefore settled the aspect with emphasis.

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Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com

ORDER 12 RULE 8 CPC AND ITS NON COMPLIANCE: EFFECT

 

Order 12 Rule 8 CPC and its non compliance: effect

The provision of Order 12 Rule 8 of Code of Civil Procedure is provided for in order to seek production of documents in the course of the proceedings of the case. The notice under the aforesaid provision is to be given by a party or pleader of a party to the other party or their pleader for seeking to produce such documents which may be necessary for just decision in the pending case. The notice can be served seeking production of such documents which may not even be part of pleading or may not be annexed in the list of documents while a suit is filed or a written statement is filed, but the same are perceived as relevant. It is, though, not a case , as regards application under Order 11 Rule 12,14 and 16 of CPC which has to be filed in the court and the documents sought to be produced shall have to be mentioned in the list of index and pleading. Before delving further, the provisions as contained in Order 12 Rule 8 of CPC may be reproduced herein for ready reference:

8. Notice to produce documents.

“Notice to produce documents shall be in Form No. 12 in Appendix C, with such variations as circumstances may require. An affidavit of the pleader, or his clerk, of the service of any notice to produce, and of the time when it was served, with a copy of the notice to produce, shall in all cases be sufficient evidence of the service of the notice, and of the time it was served”.

However, the pertinent point is whether mere non production of the documents sought for under the aforesaid provisions shall necessarily lead to adverse inference by a court or not? 

A case reported as Vipan Sodhi And Anr vs Kola Ram & Anr bearing no. CR No.5225 of 2007 (O&M) may be referred to in this context.

It is observed in the aforesaid judgment that careful reading of Order 12 Rule 8 of CPC shall make it clear that that such notice can be served by one party to the other to produce documents. There is no mandate that such notice should be served through Court. Though, another procedure is prescribed in the Code i.e  under Order XI of CPC, when, during the pendency of the suit, the parties can file an application for discovery by interrogatories or for admission and denials of the documents. Rule 5 of Order XI further stipulates that an application can be moved before the Court for seeking production of documents that may be in power and possession of such party or person. It may be noted that the provisions of Order 11 and Rule 12 are vastly different to Order 12 Rule 8 of CPC. Still further, as per Order 12 Rule 8, only a demand is to be made, thereby, calling upon the other side to produce certain documents. Whether such documents are relevant is to be examined by the Court. Thus, it follows that the provisions of Order XI and XII with regard to production of documents and effect of non-production thereof is based on a different footing, altogether. In case, the respondent while replying to the application, states stated that the documents sought are not relevant for the decision of the case, the same shall have to be duly considered. In Vipan Sodhi (Supra) no adverse inference for non production was drawn by the Court in the facts of the case.

The Division bench of Delhi High Court in a matter captioned as Harish Mansukhani vs Ashok Jain RFA 4/2008 has also succinctly dealt with the aforesaid issue. It is observed in para no. 9 as under:

“9. On the basis of the evidence on record the learned Trial Judge has decreed the suit. Four pronged reasoning can be culled out from the decision of the learned Trial Judge. From the fact that the defendant admitted having issued cheques to the plaintiff and in respect whereof he was being prosecuted the conclusion drawn is that the said evidence, evidences commercial transactions between the parties and led assurance to the truthfulness of the case pleaded in the plaint more particularly for the reason the defendant did not produce his account books. Secondly the reason that the defendant did not refute the notice of demand served by the plaintiff on 1.9.2005, proved as Ex.PW-1/3. Thirdly that the defendant did not produce the original of the 128 bills when called upon to do so vide Ex.PW-1/5 i.e. the notice served by the plaintiff upon the defendant during trial under Order 12 Rule 8 CPC. An adverse inference has been drawn against the defendant for non- production of the original bills. Lastly, the notice of demand dated 4.7.2006, Ex.PW-1/7, has been held as proof of sales effected by the plaintiff under the bills in question since the sales tax authorities had raised a demand for payment of sales tax qua said bills”.

It is further recorded in Harish Mansukhani (Supra) as under:

“13. As held in the decision reported as  Om Prabha Vs Abinash Chand AIR 1968 SC 1083 it is now settled that a decision cannot be based on facts not pleaded and no evidence would be permissible to be led with regard to a fact which has not been pleaded in its pleading by a party”.

14. There is considerable merit in the contention urged by learned counsel for the appellant that having embarked on the journey by pleading in the plaint that goods were supplied to the defendant the plaintiff could not prove that the goods were supplied to third parties, but at the asking of the defendant. That the goods were delivered to the defendant is a fact distinct from the fact that goods were delivered to a third party, but at the asking of the defendant. In this connection it assumes importance that there is no evidence acknowledging receipt of the bills by the defendant as also that there is no evidence to establish that the goods covered by the bills were at all delivered to the defendant or any third party to whom the defendant allegedly directed delivery to be made. The justification by the plaintiff of not having obtained any acknowledgment due to cordial relationship between the parties holds no water, when, as per the evidence of PW-2 most of the goods were delivered to third parties. Obviously as per the case attempted to be proved (without being pleaded) the plaintiff had no commercial dealings with said third parties and obviously maintained no cordial relations with them. Thus, normal prudent business conduct of acknowledging delivery of goods ought to have been followed and there being no evidence of the same, the probability would be that no goods were supplied to any third party at the asking of the defendant. As per the testimony of PW-2 the services of a transporter was engaged to deliver the goods to third parties outside Delhi. The said transporter to whom freight must have been paid has not been examined. The evidence of the witness of the plaintiff i.e. PW-2 as also of the plaintiff becomes shaky when we browse through the 128 bills, 88 whereof have been noted in a tabular form hereinabove. The names of 31 parties are written at the rear of 128 bills. The witness of the plaintiff only spoke about 4 out of said 31 parties”.

18. The totality of the evidence leans against the plaintiff, but what is most fatal is the variance between what was pleaded in the plaint and what was sought to be proved. No doubt, the defendant did not produce his statement of account but still, the plaintiff has to stand on his own legs to prove his case”.

The hon’ble Division bench has further held in Harish Mansukhani (Supra) that:

21. An adverse presumption can be drawn against a party who does not produce a document in his possession. Thus, before a presumption can be drawn against a party called upon to produce a document, it has to be proved that the document production whereof was sought was in the possession of the party concerned. The defendant had denied that any bill was raised on him. Thus, without proving that the plaintiff had raised the bills on the defendant, in that, without establishing that physical custody of the bills was with the defendant, no adverse inference could be drawn against the defendant.

22. No doubt, not responding to a legal notice is a piece of evidence wherefrom an adverse inference can be drawn against the noticee. But, the said adverse inference is no more than presumptive evidence which by its very nature is weak evidence. Where the totality of the evidence weighs in favour of the person issuing the notice, non response to a notice by the noticee can be put in the scales to reassure the Court that contemporaneously the noticee kept silent evidencing a kind of acquiescence. But, the quality of evidence led to prove the case positively and its probative value has always to be kept in mind and given primacy.

23. A plaintiff has to prove his case and stand on his own legs. No doubt, the defendant did not produce his books of account but that does not mean that the plaintiff must succeed on said account.

24. The evidence led by the plaintiff is shaky. The variance between what the plaintiff pleaded and attempted to prove is a serious infirmity in the case of the plaintiff. Unfortunately, the learned Trial Judge has eschewed reference to the quality of the evidence led; the variance between pleading and proof; as also has ignored certain essential features of the evidence to which we have referred to in our decision, thereby rendering the impugned judgment and decree liable to be reversed.

The hon’ble Division bench was thus pleased to accordingly reverse the judgment and held that no presumption could be drawn against the respondent for non production of documents due to the reasons illustrated above.

What therefore could be noticed is that Order 12 Rule 8 of CPC is an enabling provision for just and proper decision of the case, but, mere issuance of notice under the aforesaid provision and non-compliance thereto i.e either by not responding to notice or though, responding to the same with reasons elucidating as to why the notice is misconceived, shall not necessarily elicit adverse inference. What is required to be ascertained by the Court is that whether the documents sought for, was relevant for effective adjudication of the case and further, whether non production thereof was deliberate and with a view to conceal the documents. The adverse inference, on account of non production of documents as sought under Order XII Rule 8 of CPOC has to be weighed on the facts and circumstances of the case and there shall not be automatic presumption against a respondent, if notice under Order XII Rule 8 of CPC is either not responded to and/or the documents are not provided for while filing a fitting reply.   

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                                  Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com