Rathish Babu Unnikrishnan vs The State Govt Of Nct Of Delhi

CRIMINAL APPEAL NOS.694-695 OF 2022 (Arising out of SLP (Crl) Nos.5781-5782 OF 2020)

Rathish Babu Unnikrishnan Appellant(s)

VERSUS

The State (Govt. of NCT of Delhi) & Anr. Respondent(s)

J U D G M E N T

Hrishikesh Roy, J.

Leave granted.

2. The challenge in these appeals is to the judgment

and order dated 02.08.2019 in the Crl. M.C. No.414/2019

and Crl.M.A.No.1754/2019 whereby the Delhi High Court

dismissed the application under Section 482 of the Code

of Criminal Procedure, 1973 (hereinafter referred to as

“Cr.P.C”) for quashing of the summoning order dated

1.6.2018 and the order framing notice dated 3.11.2018, Signature Not Verified Digitally signed by Nidhi Ahuja

issued against the appellant under Section 138 of the Date: 2022.04.26 17:15:59 IST Reason: Negotiable Instruments Act, 1881 (hereinafter referred

Page 1 of 16 to as the ‘N.I. Act’). On the criminal complaint

instituted by one Satish Gupta (respondent no.2), the

order under Section 251 of the Cr.P.C. was issued

against the appellant by the Magistrate’s Court. The

High Court on considering the rival contention opined

that the grounds agitated by the appellant are “factual

defences” which should not be considered within the

parameters of limited enquiry permissible in a petition

under Section 482 Cr.P.C. Accordingly, the petition

was dismissed but the accused’s liberty to raise his

defence in the competent Court was safeguarded in the

impugned order.

3. For the appellant, Mr. Krishnamohan K., the learned

counsel argues that without satisfying the essential

ingredients for the offence under Section 138 of the

N.I. Act to the effect that the dishonoured cheque

received by the complainant is against “legally

enforceable debt or liability”, the criminal process

could not have been issued. Relying on few judgments,

it is next argued that the ingredients necessary to

constitute the offence under Section 138 of the N.I. Page 2 of 16 Act is missing in the instant case and therefore the

appellant cannot be prosecuted for the offence under

the said provision. According to the appellant, the

concerned post-dated cheques drawn by him in favour of

the complainant were, contingent/security cheques for

buyback of shares of AAT Academy (appellant’s company),

held by the complainant, and therefore the cheques

could not have been prematurely presented to the bank

and should have been presented for encashment only

after transfer of the complainant’s shareholding in the

appellant’s company. In other words, as the complainant

was still holding the shares of the appellant’s company

when the cheques were presented, the complainant is not

entitled to receive any payment at that stage, through

encashment of the cheques, made available to him

4. The complainant per-contra contends that when the

cheque are issued and the signatures thereon are

admitted, the presumption of a legally enforceable debt

will arise in favour of the holder of the cheque. In a

situation such as this, it is for the accused to rebut

the legal presumption by adducing necessary evidence

Page 3 of 16 before the trial Court. Reading the provisions of

Section 118 of the N.I. Act, it is submitted by Mr.

K.M. Nataraj, learned ASG and Ms. Rebecca M. John the

learned Senior Counsel for the complainant, that it is

obligatory for the Court to raise the legal presumption

against the accused when his cheque is dishonoured on

presentation. The learned Magistrate therefore

correctly drew such presumption which of course is

rebuttable by the appellant, by adducing evidence in

course of trial. It is specifically contended by the

complainant that in share purchase transactions, the

consideration is first paid to the seller as per the

customary practice and only thereafter the formalities

with respect to the share transfer is completed. In

support of such contention, the respondent relies on

Section 56 (1) of the Companies Act, 2013 and also the

Form SH-4 in the said Act, relating to transfer of

securities.

5. The records would show that there were transactions

between the parties under which the complainant

invested a substantial sum in the appellant’s company.

Page 4 of 16 At later stage, dispute arose amongst them but they

resolved that the invested money would be returned to

the complainant and the shares allotted to the

complainant will be proportionately transferred to the

appellant. With such understanding, the four cheques

forming the part of the criminal complaint were handed

over by the appellant. When the complainant presented

one of those cheques, the same was dishonoured by the

bank with the endorsement, “fund insufficient”.

Further, the complainant issued notice stating that the

appellant had failed to make the due payment.

Thereafter, he filed the complaint under Section 138 of

the N.I. Act which led to the summons and process

against the appellant.

6. As noted earlier, the appellant’s basic contention

is that the cheque in question was not issued in

discharge of “legally recoverable debt”. They also

raised a contention on the obligation of the

complainant to transfer the concerned shares. A

defence plea is raised by the appellant to the effect

that the cheques in question were issued as “security”

Page 5 of 16 and not in discharge of any “legally recoverable

debt”.

7. The learned Judge of the Delhi High Court while

considering the petition under Section 482 Cr.P.C kept

in mind the scope of limited enquiry in this

jurisdiction by referring to the ratio in HMT Watches

Limited vs. M.A. Abida & Anr1. and in Rajiv Thapar &

Ors. vs. Madan Lal Kapoor2 and opined that the exercise

of powers by the High Court under Section 482 Cr.P.C,

would negate the complainant’s case without allowing

the complainant to lead evidence. Such a determination

should necessarily not be rendered by a Court not

conducting the trial. Therefore, unless the Court is

fully satisfied that the material produced would

irrefutably rule out the charges and such materials

being of sterling and impeccable quality, the

invocation of Section 482 Cr.P.C power to quash the

criminal proceedings, would be unmerited. Proceeding on

this basis, verdict was given against the appellant,

who was facing the proceeding under Section 138 of the

1 (2015) 11 SCC 776 2 (2013) 3 SCC 330 Page 6 of 16 N.I. Act. With all liberty given to the appellant to

raise his defence in the trial court, his quashing

petition came to be dismissed.

8. The issue to be answered here is whether summons

and trial notice should have been quashed on the basis

of factual defences. The corollary therefrom is what

should be the responsibility of the quashing Court and

whether it must weigh the evidence presented by the

parties, at a pre-trial stage.

9. The transactional arrangement between the

complainant and the accused reveals the nature of

obligations that both had undertaken. The cheques in

question were accepted by the complainant for an agreed

price consideration, for the shares in the appellant’s

company. According to the complainant, the appellant is

to first pay and then as per the usual practice in the

trade, the shares would be transferred to the appellant

in due course within the time permitted by law. A bare

perusal of Section 56(1) of the Companies Act, 2013

indicates that a transfer of securities of a company

can take place only when a proper instrument of

Page 7 of 16 transfer is effectuated. The operation of legally

transferring shares involves several distinct steps. At

first, a contract of sale needs to be entered upon. The

nature of transaction in this contract logically then

requires payment of the price by the prospective

transferee to fulfil their promise first. In exchange,

transferor would move to fill Form SH-4 and thus,

effectuate a valid instrument. Depending on the nature

of the company and its Articles of Association, then

upon the presentation of the instrument of transfer to

the board of the company and its acceptance by the

board, the entry of the transferee in the register of

the company in place of the transferor, takes place.

Thus, the transfer of share is complete. To say it in

another way, in shares transactions, there is a time

lag between money going out from the buyer and shares

reaching to the seller. In earlier days the time gap

was longer. It has now become speedier but the gap

still remains. The share transactions in India

generally follows this pattern.

Page 8 of 16

10. It is also relevant to bear in mind that the burden

of proving that there is no existing debt or liability,

is to be discharged in the trial. For a two judges

Bench in M.M.T.C. Ltd. & Anr. vs. Medchl Chemicals and

Pharma (P) Ltd. & Anr.3, Justice S.N. Variava made the

following pertinent observation on this aspect: -

“17. There is therefore no requirement that the complainant must specifically allege in the complaint that there was a subsisting liability. The burden of proving that there was no existing debt or liability was on the respondents. This they have to discharge in the trial. At this stage, merely on the basis of averments in the petitions filed by them the High Court could not have concluded that there was no existing debt or liability.”

11. The legal presumption of the cheque having been

issued in the discharge of liability must also receive

due weightage. In a situation where the accused moves

Court for quashing even before trial has commenced, the

Court’s approach should be careful enough to not to

prematurely extinguish the case by disregarding the

legal presumption which supports the complaint. The

opinion of Justice K.G. Balakrishnan for a three judges

3 (2002) 1 SCC 234 Page 9 of 16 Bench in Rangappa vs. Sri Mohan4 would at this stage,

deserve our attention: -

“26. ... we are in agreement with the respondent claimant that the presumption mandated by Section 139 of the Act does indeed include the existence of a legally enforceable debt or liability. As noted in the citations, this is of course in the nature of a rebuttable presumption and it is open to the accused to raise a defence wherein the existence of a legally enforceable debt or liability can be contested. However, there can be no doubt that there is an initial presumption which favours the complainant.”

12. At any rate, whenever facts are disputed the truth

should be allowed to emerge by weighing the evidence.

On this aspect, we may benefit by referring to the

ratio in Rajeshbhai Muljibhai Patel vs. State of

Gujarat5 where the following pertinent opinion was given

by Justice R. Banumathi: -

“22. ………….. When disputed questions of facts are involved which need to be adjudicated after the parties adduce evidence, the complaint under Section 138 of the NI Act ought not to have been quashed by the High Court by taking recourse to Section 482 CrPC. Though, the Court has the power to quash the criminal complaint filed under Section 138 of the NI Act on the legal issues like limitation, etc. criminal complaint filed under Section 138 of the NI Act against Yogeshbhai ought not to have been quashed

4 (2010) 11 SCC 441 5 (2020) 3 SCC 794 Page 10 of 16 merely on the ground that there are inter se disputes between Appellant 3 and Respondent

2. Without keeping in view the statutory presumption raised under Section 139 of the NI Act, the High Court, in our view, committed a serious error in quashing the criminal complaint in CC No. 367 of 2016 filed under Section 138 of the NI Act.”

13. Bearing in mind the principles for exercise of

jurisdiction in a proceeding for quashing, let us now

turn to the materials in this case. On careful reading

of the complaint and the order passed by the

Magistrate, what is discernible is that a possible view

is taken that the cheques drawn were, in discharge of a

debt for purchase of shares. In any case, when there is

legal presumption, it would not be judicious for the

quashing Court to carry out a detailed enquiry on the

facts alleged, without first permitting the trial Court

to evaluate the evidence of the parties. The quashing

Court should not take upon itself, the burden of

separating the wheat from the chaff where facts are

contested. To say it differently, the quashing

proceedings must not become an expedition into the

merits of factual dispute, so as to conclusively

vindicate either the complainant or the defence. Page 11 of 16

14. The parameters for invoking the inherent

jurisdiction of the Court to quash the criminal

proceedings under S.482 CrPC, have been spelled out by

Justice S. Ratnavel Pandian for the two judges’ bench

in State of Haryana v. Bhajan Lal6, and the suggested

precautionary principles serve as good law even today,

for invocation of power under Section 482 of the

Cr.P.C.

“103. We also give a note of caution to the effect that the power of quashing a criminal proceeding should be exercised very sparingly and with circumspection and that too in the rarest of rare cases; that the court will not be justified in embarking upon an enquiry as to the reliability or genuineness or otherwise of the allegations made in the FIR or the complaint and that the extraordinary or inherent powers do not confer an arbitrary jurisdiction on the court to act according to its whim or caprice.”

15. In the impugned judgment, the learned Judge had

rightly relied upon the opinion of Justice J.S.Khehar

for a Division Bench in Rajiv Thapar (supra), which

succinctly express the following relevant parameters to

be considered by the quashing Court, at the stage of

issuing process, committal, or framing of charges, 6 AIR 1992 SC 604 Page 12 of 16 “28. The High Court, in exercise of its jurisdiction under Section 482 CrPC, must make a just and rightful choice. This is not a stage of evaluating the truthfulness or otherwise of the allegations levelled by the prosecution/ complainant against the accused. Likewise, it is not a stage for determining how weighty the defences raised on behalf of the accused are. Even if the accused is successful in showing some suspicion or doubt, in the allegations levelled by the prosecution/ complainant, it would be impermissible to discharge the accused before trial. This is so because it would result in giving finality to the accusations levelled by the prosecution/complainant, without allowing the prosecution or the complainant to adduce evidence to substantiate the same.”

16. The proposition of law as set out above makes it

abundantly clear that the Court should be slow to grant

the relief of quashing a complaint at a pre-trial

stage, when the factual controversy is in the realm of

possibility particularly because of the legal

presumption, as in this matter. What is also of note

is that the factual defence without having to adduce

any evidence need to be of an unimpeachable quality, so

as to altogether disprove the allegations made in the

complaint.

17. The consequences of scuttling the criminal process

at a pre-trial stage can be grave and irreparable. Page 13 of 16 Quashing proceedings at preliminary stages will result

in finality without the parties having had an

opportunity to adduce evidence and the consequence then

is that the proper forum i.e., the trial Court is

ousted from weighing the material evidence. If this is

allowed, the accused may be given an un-merited

advantage in the criminal process. Also because of the

legal presumption, when the cheque and the signature

are not disputed by the appellant, the balance of

convenience at this stage is in favour of the

complainant/prosecution, as the accused will have due

opportunity to adduce defence evidence during the

trial, to rebut the presumption.

18. Situated thus, to non-suit the complainant, at the

stage of the summoning order, when the factual

controversy is yet to be canvassed and considered by

the trial court will not in our opinion be judicious.

Based upon a prima facie impression, an element of

criminality cannot entirely be ruled out here subject

to the determination by the trial Court. Therefore,

Page 14 of 16 when the proceedings are at a nascent stage, scuttling

of the criminal process is not merited.

19. In our assessment, the impugned judgment is

rendered by applying the correct legal principles and

the High Court rightly declined relief to the accused,

in the quashing proceeding. Having said this, to rebut

the legal presumption against him, the appellant must

also get a fair opportunity to adduce his evidence in

an open trial by an impartial judge who can

dispassionately weigh the material to reach the truth

of the matter. At this point, one might benefit by

recalling the words of Harry Brown, the American author

and investment advisor who so aptly said - “A fair

trial is one in which the rules of evidence are

honored, the accused has competent counsel, and the

judge enforce the proper court room procedure – a trial

in which every assumption can be challenged.” We expect

no less and no more for the appellant.

20. We might add before parting that the observation

made in this judgment is only for the limited purpose

of this order and those should not stand in the way of Page 15 of 16 the trial Court to decide the case on merit. The

appeals are accordingly dismissed leaving the parties

to bear their own cost.

………………………………………………………J. [K.M. JOSEPH]

………………………………………………………J. [HRISHIKESH ROY] NEW DELHI APRIL 26, 2022

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