2025 (9) TMI 119 - SC - Indian Laws

Appeal restores Section 138 & 141 NI Act complaints; SICA/Sec 22 not a bar unless restraint expressly prevents using assets

Shree Nagani Silk Mills Pvt. Ltd. Versus L.D. Industries Ltd. & Ors.

Shree Nagani Silk Mills Pvt. Ltd. Versus L.D. Industries Ltd. & Ors. - 2025 INSC 1064 1. ISSUES PRESENTED AND CONSIDERED 1. Whether a Magistrate may recall processes issued on a complaint under Section 138 read with Section 141 of the Negotiable Instruments Act at the stage before evidence is led, or whether such recall is impermissible. 2. Whether a restraint order issued by the Board under Section 22A of the Sick Industrial Companies (Special Provisions) Act operates as an absolute bar to institution or continuation of criminal proceedings under Section 138 of the Negotiable Instruments Act, and if not, how such restraint orders affect the viability of Section 138 proceedings. 3. Whether, in the presence of a Section 22A restraint order that permits drawing on current assets for day-to-day operations, a revisional court was justified in recalling processes and discharging accused at the threshold without permitting evidence to be led. 4. The stage and standard at which factual contentions (e.g., that cheques were post-dated or that payment was prevented by an embargo) challenging the complaint should be adjudicated in proceedings under Section 138 N.I. Act. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Recall of processes by Magistrate: legal framework Legal framework: Trial courts' power to recall or review issuance of summons is constrained; the recognized narrow power is to revisit process issuance where the court lacks jurisdiction, and there is no general inherent power to review or recall summons once issued. Precedent treatment: The Court follows prior authoritative decisions holding that recall/review of summons at the magisterial stage is not permissible as a general power and that trial courts cannot exercise an inherent revisory power to recall summons except where jurisdictional defect is shown. Interpretation and reasoning: The Court affirms that the application to recall processes was not maintainable and that the Magistrate correctly rejected the recall application. The revisional court erred in recalling processes and discharging accused at the threshold because that amounted to exercising a power not available at that stage; questions requiring evidence should not be prematurely decided by recalling the process. Ratio vs. Obiter: Ratio - recalling processes at the stage before evidence is led is impermissible except where lack of jurisdiction is demonstrated; such applications are not maintainable as a general remedy. (This is treated as binding on the facts.) Conclusions: The Magistrate's refusal to recall processes stands correct; the revisional court's interference was erroneous and required reversal. Issue 2 - Effect of Section 22A restraint order on Section 138 proceedings: legal framework Legal framework: Section 22 of SICA suspends certain civil remedies and proceedings; Section 22A empowers the Board to direct that the sick company not dispose of assets except with consent of the Board. Those provisions are designed to preserve assets for scheme implementation and creditor protection, not to create an absolute immunity from criminal liability. Precedent treatment: The Court follows earlier decisions which held (i) Section 22 does not create an absolute bar to instituting criminal proceedings under Section 138 N.I. Act; (ii) Section 22A restraint orders may, depending on facts and timing, affect whether the offence under Section 138 is to be regarded as completed or whether liability can fairly be imposed; and (iii) factual circumstances determine whether prosecution should be interdicted. Interpretation and reasoning: The Court reiterates that Section 22 SICA does not prevent instituting or proceeding with criminal cases under Section 138. Where a Section 22A restraint order exists, whether proceedings under Section 138 can be maintained depends on facts - notably the timing of the order relative to cheque issuance/notice and the nature of the restraint order. If the restraint order predated issuance such that the offence could not be consummated, prosecution may be unjust. Conversely, where restraint orders permit drawing on current assets for day-to-day operations, the restraint is not absolute and does not automatically bar Section 138 proceedings. Ratio vs. Obiter: Ratio - Section 22A restraint orders are not per se, absolute bars to Section 138 prosecutions; the effect of a restraint order is fact-dependent and ordinarily requires adjudication on evidence. (This is applied as binding reasoning.) Conclusions: A Section 22A restraint order does not ipso facto preclude Section 138 complaints; courts must examine the specific terms of the restraint order and the factual matrix, normally after evidence, before deciding to quash criminal proceedings. Issue 3 - Application of the restraint order permitting current assets to be drawn for day-to-day operations Legal framework: Where a restraint order expressly allows drawing current assets for day-to-day operations, the restriction is partial; the board's direction aims to preserve assets but may leave room for operational disbursements. Precedent treatment: The Court relies on prior analyses that the nature of the restraint order (its wording and temporal relation to the cheque/notice dates) is determinative and that where current assets may be used for day-to-day operations, issuance of cheques for operational purposes may not be barred by SICA orders. Interpretation and reasoning: The restraint order in the present record permitted use of current assets 'to the extent required for day-to-day operations.' Given complaint allegations that cheques were issued in discharge of liabilities for supplies, and the statutory presumption as to the date of negotiable instruments, the Court held that the factual question whether cheques were issued for day-to-day operations cannot be decided at the threshold. Evidence is required to rebut the statutory presumption of the date and to establish whether the restraint order legitimately prevented payment. Ratio vs. Obiter: Ratio - where restraint orders allow drawing on current assets for day-to-day operations, a court should not quash Section 138 proceedings at the threshold; the question must be resolved on evidence during trial. Conclusions: The revisional court erred in discharging the accused without evidence; the restraint order as recorded did not create an absolute embargo and therefore could not justify pre-trial discharge. Issue 4 - Stage and standard for adjudicating factual contentions (e.g., post-dated cheques, embargo defense) Legal framework: Section 118(b) of the Negotiable Instruments Act raises a rebuttable presumption that a negotiable instrument bearing a date was made on that date. Challenging such presumption requires evidence; summary dismissal at the summons stage is inappropriate absent compelling jurisdictional reasons. Precedent treatment: The Court applies established law that factual disputes - including claims of post-dating or that payment was prevented by a restraint order - are ordinarily to be assessed after evidence is led and should not be conclusively determined on the basis of the complaint and supporting affidavit alone. Interpretation and reasoning: Given the statutory presumption as to instrument date and the complaint allegations that cheques were issued for supplies, the Court found it impermissible to preclude trial by accepting the accused's factual assertions at the summons/revision stage. The proper course is restoration of proceedings and adjudication after evidence is placed before the trial court. Ratio vs. Obiter: Ratio - factual contentions that negate criminal liability under Section 138 (such as post-dating or operative impact of a restraint order) generally require evidence and adjudication at trial rather than determination at the summons stage. Conclusions: The complaints should be restored and proceedings before the Magistrate resumed so that parties can lead evidence; threshold discharge was improper. Final Disposition (Court's Conclusion applying the above reasoning) The revisional court's recall of processes and discharge of the accused was erroneous; the High Court erred in not correcting that error. Proceedings under Section 138 read with Section 141 of the Negotiable Instruments Act are restored to the Magistrate's file for adjudication in accordance with law and on evidence. Pending applications are disposed of accordingly.