TaxTMI 
TaxTMI 
2021 (10) TMI 378
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.................................................................................................... 40 A Factual Background 1 This batch of appeals has arisen from a judgment dated 10 April 2019 of a Single Judge of the High Court of Judicature at Madras by which proceedings in a complaint- CC No. 389 of 2017 under Section 138 of the Negotiable Instruments Act 1881-"NI Act", pending on the file of the Seventh Metropolitan Magistrate's Court at Chennai were quashed. The jurisdiction of the Single Judge was invoked under Section 482 of the Code of Criminal Procedure 1973-"CrPC". 2 On 17 and 27 April 2012, the appellant entered into three High Seas Sale Agreements-"HSSA" with Aanchal Cement Limited-"ACL". On the request of ACL, the appellant paid an amount of Rs. 6.96 crores (Rs. 6,96,74,666/-) as customs duty and Rs. 8.04 crores (Rs. 8,04,12,495/-) as wharfage charges in order to clear the goods on behalf of ACL which is alleged to have promised to repay the amount with interest. It has been alleged that though the appellant supplied the goods, ACL failed to make payments. On 6 August 2012, ACL issued 18 cheques dated 8 August 2012, each in the amount of Rs. 50 lakhs, for a tot....
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....and Thirty Three Only) every month to the "PARTY OF THE SECOND PART". The monthly instalment shall be paid on or before 11th day of every month i.e. 11/04/2013, 11/05/2013 and 11/06/2013. 4. The "PARTY OF THE FIRST PART" agrees and undertake to pay the monthly instalment of Rs. 2,33,33,333/- equally divided in three parts and Sri. Sitram Goel, Sri. Manoj Goel and M/s Aanchal collection Limited would issue cheques in faovour of the "PARTY OF THE SECOND PART" towards the compliance of the settlement. 5. The "PARTY OF THE FIRST PART" handed over following cheques to the "PARTY OF THE SECOND PART" as compliance of the assurance and undertaking given by the "PARTY OF THE FIRST PART" [...] 6. The "PARTY OF THE FIRST PART" after consultation with the directions of M/s. Aanchal Cement Limited (Formerly M/s Kalika Cement Private Limited) and M/s. Aanchal Collection Limited, which is also family business and sister concern of "PARTY OF THE FIRST PART" and Sri. Sitaram Goel, has arrived at this settlement and signing this compromise deed. Any default or non commitment of the conditions set out in this compromise deed would amount to cheating and fraud. The ....
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....e deed of compromise as illegal, null and void, and for return of the cheques issued to the appellant pursuant to it. Initially, an interim injunction was issued and the cheques were replaced. By an order dated 2 December 2013, the interim application was rejected and the claim of ACL that the deed of compromise was obtained by force, fraud and coercion was not found to be worthy of acceptance. An appeal against the judgment of the Single Judge was dismissed as withdrawn on 12 December 2014. 8 On 14 December 2015, this Court stayed further proceedings arising out of the FIR Crime No. 21/2013 (which had been registered with the Central Crime Branch) for offences punishable under Section 409 and 506(1) of the IPC. 9 On 15 November 2016, the Madras High Court dismissed the proceedings initiated by Sitaram Goel for quashing of the first set of complaints under Section 138 of the NI Act against him. 10 The cheques issued in pursuance of the deed of compromise dated 12 March 2013 having been dishonoured, a second complaint CC No. 389 of 2017 was instituted on 16 February 2017 by the appellant under Section 138 of the NI Act before the Seventh Metropolitan Magistrate (the complai....
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....ea and we expect the High Court to deal with the issue on its own merits. We make it clear that this Court has not expressed any opinion on the merits of the issue and it is for the High Court to take its own view. With the aforesaid observations the special leave petition is disposed of. Pending application(s), if any, stands disposed of accordingly." 13 On 14 June 2018, the second complaint was transferred to be tried along with the earlier batch of 7 cases, the first set of complaints. Pursuant to the order of this Court, on 19 July 2018, ACL instituted proceedings Crl.O.P Nos 21731-21737 of 2018 against C.C. No. 3326-3329 of 2012 and C.C. No. 99-101 of 2013 under Section 482 of the CrPC for quashing the first complaint under Section 138 of the NI Act. 14 By an order dated 6 August 2018, in the special leave petition- SLP (Criminal) Diary No. 17257 of 2018 instituted before this Court against the order of the High Court dated 24 November 2017, liberty was granted to the respondent, Manoj Goel, in the following terms to raise the issue of the simultaneous prosecution of two sets of cases: "Delay condoned. It is argued by Mr. R. B....
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....ot influence the trial of the criminal complaint. The High Court passed an order thereon on 8 July 2019. 17 The judgment of the High Court dated 10 April 2019 has given rise to the special leave petitions before us. A special leave petition SLP (Criminal) No. 6564 of 2019 was instituted by the appellant before this Court against the quashing the second criminal complaint by the High Court. On the other hand, ACL filed a special leave petition SLP (Criminal) Nos. 7632-7638 of 2019 against the judgment of the High Court allowing the proceedings under the first complaint to continue. Both the special leave petitions were tagged and heard together. 18 The Single Judge, while allowing the petition under Section 482 and quashing the proceedings in the second complaint has provided the following reasons: "19. [...] without going into the validity of the deed of compromise the cheques issued on the deed of compromise culminated in C.C. No. 389 of 2017. Though part of compromise deed executed by the parties, the complaint initiated on the cheques issued on the deed of compromise cannot be sustained. Since originally the petitioners issued the first set of cheques on their lia....
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....n 139 of the NI Act, at this stage the Court has to proceed on the basis that the cheques were issued in discharge of a legally enforceable debt; (v) The mere pendency of a suit seeking to challenge the deed of compromise is not a ground to quash the criminal complaint given the clear distinction in law between an order of conviction and an order at an anterior stage seeking quashing of a criminal complaint; and (vi) There is no embargo under Section 138 of the NI Act on parallel proceedings for distinct offences involving the dishonor of cheques. Both sets of criminal complaints in respect of the first set of cheques and the second set of cheques are being tried by the same court. It is not legitimately open to the accused who committed a breach of the settlement to seek a quashing of the criminal complaints. The Magistrate at the end of the trial would undoubtedly determine the nature of the sentence that should be imposed. 21 On the other hand, Mr Jayant Bhushan, learned Senior Counsel has urged the following submissions. (i) The essential issue is whether a criminal trial can go on with both sets of cheques; (ii) The crucial ingredient of ....
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....iency, etc., of funds in the account. Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless-- (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier; (b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount....
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....at, while it arises out of a civil wrong, the law, however, imposes a criminal penalty in the form of imprisonment or fine. The purpose of the enactment is to provide security to creditors and instil confidence in the banking system of the country. The nature of the proceedings under Section 138 of the NI Act was considered by a three judge Bench decision of this Court in P Mohanraj and Others v. Shah Brothers Ispat Private Limited (2021) 6 SCC 258, where Justice RF Nariman, after adverting to the precedents of this Court, observed that: "53. A perusal of the judgment in Ishwarlal Bhagwandas [S.A.L. Narayan Row v. Ishwarlal Bhagwandas, (1966) 1 SCR 190 : AIR 1965 SC 1818] would show that a civil proceeding is not necessarily a proceeding which begins with the filing of a suit and culminates in execution of a decree. It would include a revenue proceeding as well as a writ petition filed under Article 226 of the Constitution, if the reliefs therein are to enforce rights of a civil nature. Interestingly, criminal proceedings are stated to be proceedings in which the larger interest of the State is concerned. Given these tests, it is clear that a Section 138 proceeding can be ....
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....dishonour of cheques. While the possibility of imprisonment up to two years provides a remedy of a punitive nature, the provision for imposing a "fine which may extend to twice the amount of the cheque" serves a compensatory purpose. What must be remembered is that the dishonour of a cheque can be best described as a regulatory offence that has been created to serve the public interest in ensuring the reliability of these instruments. The impact of this offence is usually confined to the private parties involved in commercial transactions." 30 However, this Court also noted that the introduction of a criminal remedy has given rise to a worrying trend where cases under Section 138 of the NI Act are disproportionately burdening the criminal justice system. This Court observed: "5. Invariably, the provision of a strong criminal remedy has encouraged the institution of a large number of cases that are relatable to the offence contemplated by Section 138 of the Act. So much so, that at present a disproportionately large number of cases involving the dishonour of cheques is choking our criminal justice system, especially at the level of Magistrates' Courts. As per the 213th R....
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....g to take the chance of progressing through the various stages of litigation and then choose the route of settlement only when no other route remains. While such behaviour may be viewed as rational from the viewpoint of litigants, the hard facts are that the undue delay in opting for compounding contributes to the arrears pending before the courts at various levels. If the accused is willing to settle or compromise by way of compounding of the offence at a later stage of litigation, it is generally indicative of some merit in the complainant's case. In such cases it would be desirable if parties choose compounding during the earlier stages of litigation. If however, the accused has a valid defence such as a mistake, forgery or coercion among other grounds, then the matter can be litigated through the specified forums. [...] 23. We are also in agreement with the learned Attorney General's suggestions for controlling the filing of multiple complaints that are relatable to the same transaction. It was submitted that complaints are being increasingly filed in multiple jurisdictions in a vexatious manner which causes tremendous harassment and prejudice to the drawers o....
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....mici Curiae that cases pending at the appellate stage and before the High Courts and this Court can be settled through mediation. We request the High Courts to identify the pending revisions arising out of complaints filed under Section 138 of the Act and refer them to mediation at the earliest. The Courts before which appeals against judgments in complaints under Section 138 of the Act are pending should be directed to make an effort to settle the disputes through mediation." 33 The pendency of court proceedings under Section 138 of the NI Act and the multiplicity of complaints in which a cause of action arising from one transaction is litigated has dampened the ease of doing business in India, impacted business sentiments and hindered investments from investors. Recognising these issues, the Ministry of Finance by a notice https://financialservices.gov.in/sites/default/files/Decriminalization%20-%20Public%20Comments.pdf dated 8 June 2020, has sought comments regarding decriminalisation of minor offences, including Section 138 of the NI Act, to improve the business sentiment in the country. 34 It is in this backdrop that we must now analyse the issue regarding pendency....
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....ispute that following the receipt of an amount of Rs. 3 crores, in pursuance of the compromise deed, Mukesh Goel was granted bail by the competent court. The balance due and payable under the deed of compromise has admittedly not been paid and the second set of cheques has been dishonoured. ACL proceeded to institute a suit before the Madras High Court to challenge the deed of compromise. While the suit is pending, the interim application stands dismissed. In this backdrop, there are two sets of criminal complaints under Section 138 of the NI Act based on the dishonour of the first set of cheques and the second set respectively. 37 Allowing prosecution under both sets of complaints would be contrary to the purpose of the enactment. As noted above, it is the compensatory aspect of the remedy that should be given priority as opposed to the punitive aspect. The complainant in such cases is primarily concerned with the recovery of money, the conviction of the accused serves little purpose. In fact, the threat of jail acts as a stick to ensure payment of money. This Court in R. Vijayan v. Baby (2012) 1 SCC 260 has emphasised how punishment of the offender is of a secondary concern fo....
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....suing both the original complaint and the subsequent complaint arising from such non-compliance. The settlement agreement subsumes the original complaint. Non-compliance of the terms of the settlement agreement or dishonour of cheques issued subsequent to it, would then give rise to a fresh cause of action attracting liability under Section 138 of the NI Act and other remedies under civil law and criminal law. 39 A contrary interpretation, which allows for the complainant to pursue both the original complaint and the consequences arising out of the settlement agreement, would lead to contradictory results. First, it would allow for the accused to be prosecuted and undergo trial for two different complaints, which in its essence arise out of one underlying legal liability. Second, the accused would then face criminal liability for not just the violation of the original agreement of the transaction which had resulted in issuance of the first set of cheques, but also the cheques issued pursuant to the compromise deed. Third, instead of reducing litigation and ensuring faster recovery of money, it would increase the burden of the criminal justice system where judicial time is being ....
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....o the cheques and had not been made parties to the complaint. During the pendency of the complaint, an agreement was entered into between Manish Arora, Ashish Narula and the complainant under which it was envisaged that if a cheque for Rs. 5,02,050/- was issued, the complaint would be withdrawn. Manish Arora issued a cheque which was returned on presentation for insufficiency of funds. Meanwhile, Ashish Narula and the company entered into an agreement stating that the liability arising from the said transaction was of the director personally, and not of the company. Another complaint was filed on the basis of the return of the subsequent cheque, where Manish Arora and Ashish Narula and the appellants were made parties. In this backdrop, the Court noted that in respect of the first cheques, the appellants were not proceeded against and though a compromise was entered into between Manish Arora and Ashish Narula and the complainant, the complaint had not been withdrawn and the two directors had been found guilty of an offence under Section 138 of NI Act. Manish Arora had issued the second cheque in terms of the settlement between the parties. It was in this backdrop, that the Court ob....
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.... 43 The above decision has been subsequently considered in a very recent decision of a two judge Bench in Arun Kumar v. Anita Mishra (2020) 16 SCC 118. In that case, a complaint was filed by the appellant under Section 138 against the respondent. The Judicial Magistrate, First Class, convicted and sentenced the respondent to six months' imprisonment and to a fine. During the pendency of the criminal appeal, a compromise was arrived at before the Lok Adalat in terms of which the respondent issued a post-dated cheque in favour of the appellant. The cheque was dishonoured on presentation and this led to the institution of a complaint under Section 138. The respondent filed an application for dismissal of the complaint. The application and a revision were dismissed. A petition under Section 482 CrPC thereafter was allowed by the High Court on the ground that the question of quashing the second complaint did not arise when the cheque was not issued in discharge of any debt or liability but on account of a settlement. Distinguishing the earlier judgment in Lalit Kumar Sharma (supra), the Court held: "9. Lalit Kumar case [Lalit Kumar Sharma v. State of U.P., (2008) 5 SCC 638 : (....
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....ove, in our opinion, once the compromise deed dated 12 March 2013 was agreed, the original complaint must be quashed and parties must proceed with the remedies available in law under the settlement agreement. C.2 Liability arising from the settlement agreement 46 Once a settlement agreement has been entered into between the parties, the parties are bound by the terms of the agreement and any violation of the same may result in consequential action in civil and criminal law. 47 In the present case, the first set of cheques which were issued allegedly towards discharge of the liability under the HSSA were dishonoured. A deed of compromise was entered into thereafter on 12 March 2013. The deed of compromise was partially implemented by the payment of an amount of Rs. 3 crores by demand draft to the complainant. Upon the receipt of an amount of Rs. 3 crores, Gimpex Private Limited was to grant its no objection to the plea of bail of Manoj Goel. Manoj Goel undertook to pay the balance of Rs. 7 crores within three months in instalments. The second set of cheques issued pursuant to the deed of compromise were also dishonoured. The Single Judge of the High Court adverted to clause....
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....nal sanctions. The deed of compromise, according to the submission, represented a novation. Extending this line of argument, it was urged that it was the appellant who did not withdraw the criminal proceedings and pursued with the arbitration in which event its conduct must be construed to amount to repudiation of the settlement. Thus, it has been urged that the appellant can only insist on the enforcement of the liability in relation to the first set of cheques. 50 We are unable to accept the line of argument on two grounds. First, as held above, a settlement agreement effaces the original complaint and thus, it is not up to the parties, either complainant or accused, to simply reverse the effects of that agreement and relitigate the original complaint relating to the same underlying transaction under Section 138 of the NI Act. Second, the breach of the deed of compromise has arisen due to the dishonour of the cheques which were issued by the accused towards discharge of the remaining balance of Rs. 7 crores. In this backdrop, it was farfetched for the High Court to have quashed the proceedings in exercise of its jurisdiction under Section 482. For as a two judge Bench of this ....
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....consideration and in discharge of any debt or liability. A presumption is not in itself evidence, but only makes a prima facie case for a party for whose benefit it exists. 19. The use of the phrase "until the contrary is proved" in Section 118 of the Act and use of the words "unless the contrary is proved" in Section 139 of the Act read with definitions of "may presume" and "shall presume" as given in Section 4 of the Evidence Act, makes it at once clear that presumptions to be raised under both the provisions are rebuttable. When a presumption is rebuttable, it only points out that the party on whom lies the duty of going forward with evidence, on the fact presumed and when that party has produced evidence fairly and reasonably tending to show that the real fact is not as presumed, the purpose of the presumption is over." 52 The accused, the Court held, may adduce direct evidence to prove that the cheque in question was not supported by consideration and that there was no debt or liability to be discharged. To disprove the presumption, the accused has to bring on the record circumstances which may lead the court to believe that the consideration and debt did not exist....