2018 (4) TMI 1950 - HC - Indian Laws

Court converts dishonored cheque claim to commercial summary suit; Defendants' defense rejected under Section 13.

The court converted a summary suit into a commercial summary suit due to a dishonored cheque amounting to Rs.1,86,78,313. The Plaintiff's claim was for ... Liability under Section 30 of the Negotiable Instruments Act - distinction between a suit on a negotiable instrument and a suit for recovery of loan - bar under Section 13 of the Maharashtra Money Lending (Regulation) Act, 2014 to passing decree in favour of an unlicensed moneylender - conditional leave to defend in a commercial summary suit - deposit as condition for defending in summary proceedings - Order 38 Rule 5 CPC - attachment before judgmentLiability under Section 30 of the Negotiable Instruments Act - distinction between a suit on a negotiable instrument and a suit for recovery of loan - bar under Section 13 of the Maharashtra Money Lending (Regulation) Act, 2014 to passing decree in favour of an unlicensed moneylender - Whether the suit is for recovery of a loan subject to the bar in Section 13 of the Maharashtra Money Lending (Regulation) Act, 2014, or a suit for compensation by the holder of a dishonoured cheque under the Negotiable Instruments Act. - HELD THAT: - The plaint and accompanying documents show that the cause of action pursued is compensation as holder of a dishonoured cheque and not a direct suit for recovery of money lent. Once payment is effected by a negotiable instrument, the original loan liability is, in effect, discharged and a distinct statutory liability under Section 30 of the Negotiable Instruments Act arises on dishonour, provided due notice is given. The court held that Section 13 of the Maharashtra Money Lending Act bars passing a decree in suits that relate to money lent where the plaintiff was an unlicensed moneylender when the loan was made, but that this bar does not render the underlying consideration (the loan) invalid nor does it prevent recovery in a suit founded on the separate statutory liability created by a dishonoured cheque. Consequently, the defence based on absence of a money lending licence is not a ground for resisting a suit founded on the negotiable instrument; other pleaded defences which merely assert accounting entries or that the cheque was security are prima facie unsubstantial. [Paras 4, 5, 6]The suit is a claim under the Negotiable Instruments Act for compensation on a dishonoured cheque and the bar in Section 13 of the Maharashtra Money Lending Act does not preclude a decree in such a suit; the licence defence is rejected as a basis for unconditional leave to defend.Conditional leave to defend in a commercial summary suit - deposit as condition for defending in summary proceedings - Whether the defendants should be granted leave to defend the commercial summary suit and, if so, on what terms. - HELD THAT: - Although the court found the plaintiff's cause of action to be on a dishonoured cheque and the licence defence to be without merit, it exercised judicial discretion to permit the defendants an opportunity to defend at trial as a matter of mercy. The court conditioned leave to defend of Defendant No.1 upon deposit of the entire principal amount claimed into court within eight weeks; the deposited sum was directed to be invested in fixed deposits by court officials. Defendant Nos.2 and 3 were granted unconditional leave to defend and permitted to file written statements within a specified period. The court thereby balanced the summary nature of the proceeding and the plaintiff's statutory right with the defendants' opportunity to present their case subject to security for the claim. [Paras 7, 8]Defendant No.1 granted leave to defend only upon deposit of the principal amount into court within the stipulated period; Defendant Nos.2 and 3 granted unconditional leave to defend with directions on filing of written statements and subsequent case management.Order 38 Rule 5 CPC - attachment before judgment - Whether the plaintiff's application for attachment before judgment under Order 38 Rule 5 CPC should be allowed. - HELD THAT: - Given the conditional order permitting defence (including the deposit condition) and the absence of any material showing a concrete likelihood that the defendants would dissipate assets to defeat any future decree, the court found no basis to grant attachment before judgment. The conditional security ordered in relation to leave to defend further reduced the necessity for pre judgment attachment. [Paras 9]Application for attachment before judgment under Order 38 Rule 5 CPC dismissed.Final Conclusion: The High Court held that the suit is maintainable as a claim under the Negotiable Instruments Act for compensation on a dishonoured cheque and is not barred by the Maharashtra Money Lending Act's licence requirement; Defendant No.1 was allowed to defend only upon depositing the principal sum into court while Defendant Nos.2 and 3 were granted unconditional leave to defend; the plaintiff's application for attachment before judgment was dismissed. Issues involved:1. Suit based on a dishonored cheque for a significant amount.2. Defendants' defense under Section 13 of the Maharashtra Money Lending (Regulation) Act, 2014.3. Interpretation of the suit as compensation for dishonored cheque rather than recovery of a loan.4. Defendants' arguments regarding the nature of the transaction and the validity of the Plaintiff's license.5. Consideration of the liabilities arising from the negotiable instrument.6. Rejection of nominal defenses and granting conditional leave to defend the suit.7. Orders passed by the court regarding defense, deposit of the principal amount, and further proceedings.1. Suit based on a dishonored cheque:The judgment involves a summary suit converted into a commercial summary suit due to a dishonored cheque amounting to Rs.1,86,78,313. The Plaintiff claimed to have advanced a loan to the Defendants, leading to the issuance of the dishonored cheque.2. Defendants' defense under Section 13 of the Act:The Defendants contended that no decree could be passed in the suit under Section 13 of the Maharashtra Money Lending (Regulation) Act, 2014, due to the lack of a valid license held by the Plaintiff during the loan transactions.3. Interpretation of the suit as compensation for dishonored cheque:The court clarified that the suit was for compensation to the Plaintiff as the holder of a dishonored bill of exchange or cheque, not for the recovery of a loan. The liability under the loan was substituted by the liability to honor the negotiable instrument.4. Defendants' arguments and validity of Plaintiff's license:The Defendants argued that the Plaintiff was engaged in money lending without a valid license, citing case law to support their defense. However, the court emphasized that the suit was related to the dishonored negotiable instrument, not the original loan transaction.5. Consideration of liabilities from the negotiable instrument:The court highlighted that the Defendants were bound to compensate the Plaintiff for the dishonored cheque under the Negotiable Instruments Act, irrespective of the Plaintiff's licensing status at the time of the loan transaction.6. Rejection of nominal defenses and granting conditional leave to defend:The court dismissed nominal defenses raised by the Defendants, such as entries for income tax purposes or the cheque issued as security, as insufficient. Conditional leave to defend the suit was granted to the Defendants, subject to depositing the principal amount of the dishonored cheque.7. Orders passed by the court:The court granted Defendant No. 1 leave to defend the suit upon depositing the principal amount within eight weeks. Defendant Nos. 2 and 3 were granted unconditional leave to defend. Further directions and timelines for filing written statements were provided, and a notice of motion for attachment before judgment was dismissed due to lack of concrete likelihood of property disposal by the Defendants.