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HomeNewsFrom the Courts
11 May 2022 12:15 PM GMT

Supreme Court rules on Negotiable Instruments Act

By: Nilima Pathak
Supreme Court rules on Negotiable Instruments Act

Supreme Court rules on Negotiable Instruments Act It upheld the judgment of the Delhi High Court The Supreme Court has rejected an appeal to quash the proceedings under the Negotiable Instruments Act, 1881, at the pre-trial stage. The division bench comprising Justice KM Joseph and Justice Hrishikesh Roy ruled, "The quashing proceedings must not become an expedition into the merits...

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Supreme Court rules on Negotiable Instruments Act

It upheld the judgment of the Delhi High Court

The Supreme Court has rejected an appeal to quash the proceedings under the Negotiable Instruments Act, 1881, at the pre-trial stage.

The division bench comprising Justice KM Joseph and Justice Hrishikesh Roy ruled, "The quashing proceedings must not become an expedition into the merits of a factual dispute, so as to conclusively vindicate either the complainant or the defence."

The court held that when there was a legal presumption, it would not be judicious for the quashing court to carry out a detailed inquiry on the facts alleged, without first permitting the trial court to evaluate the evidence of the parties.

The bench upheld the impugned judgment of the Delhi High Court, wherein acting as a quashing court under Section 482 of CrPC, the court had refused to quash proceedings at the pre-trial stage.

The apex court observed, "The quashing court should not take upon itself, the burden of separating the wheat from the chaff where facts are contested."

The case pertained to the complainant investing a substantial sum in the appellant's company. However, as some dispute arose between them, the two reached a compromise. It was decided that the invested money would be returned to the complainant and the shares allotted to the complainant would be proportionately transferred to the appellant.

Pursuant to that, the appellant issued four cheques, which on being presented by the complainant, were dishonored due to insufficient funds. Consequently, the proceedings came under the NI Act.

The appellant argued that without satisfying the offence under the NI Act to the effect that the dishonored cheque received by the complainant was against the 'legally enforceable debt or liability', a criminal process could not be issued.

The appellant further contended that the cheques were issued as a 'security' for the buyback of shares and not in discharge of any 'legally recoverable debt.' Therefore, those could not have been prematurely presented to the bank. The cheques should have been presented for encashment only after the transfer of the complainant's shareholding in the appellant's company.

On the other hand, the complainant maintained that when the cheques were issued and the signatures thereon were admitted, the presumption of a legally enforceable debt would arise in favor of the holder of the cheque. He argued that the appellant should first pay, and then as per the usual practice in the trade, the shares would be transferred to the appellant within the time permitted by the law.

While analyzing a previous case, the bench concluded that when there was a legal presumption, it would not be judicious for the quashing court to carry out a detailed inquiry on the facts alleged, without first permitting the trial court to evaluate the evidence of the parties.

It observed, "The consequences of scuttling the criminal process at a pre-trial stage can be grave and irreparable."

The court further stated that whenever facts were disputed, the truth should be allowed to emerge by weighing the evidence. Otherwise, the accused might get an un-merited advantage in the criminal process.

While giving the judgment, Justice Roy held that when the cheque and the signature were not disputed by the appellant, the balance of convenience was in favor of the complainant/prosecution. The accused would have the due opportunity during the trial to rebut the presumption.

The bench also reached the findings that - in shares transactions, there is a time lag between money going out from the buyer and shares reaching the seller; the burden of proving that there is no existing debt or liability is to be discharged during the trial; the legal presumption of the cheque having been issued in the discharge of liability must also receive due weightage; and, in a situation where the accused moves the court for quashing even before trial has commenced, the court should be careful not to prematurely extinguish the case by disregarding the legal presumption, which supports the complaint.

While Additional Solicitor General KM Nataraj and Senior Counsel Rebecca M John appeared for the complainant, Advocate Krishnamohan K represented the appellant.

Nilima Pathak

Nilima Pathak

TAGS:
  • Supreme Court 
  • Justice KM Joseph 
  • Justice Hrishikesh Roy 
  • High Court 
  • Negotiable Instruments Act 
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