Rathish Babu Unnikrishnan vs State (Govt. of NCT of Delhi)

Rathish Babu Unnikrishnan vs State (Govt. of NCT of Delhi)

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले



REPORTABLE
 IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
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,
issued against the appellant under Section 138 of the
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
Page 16 of 16

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