"Cheque Dishonor & Retirement Claim”

DATE OF ORDER – 23 AUGUST 2023

BENCH – HON’BLE JUSTICE HIMA KHOLI

                  HON’BLE JUSTICE RAJESH BINDAL

PARTIES – APPELLANT- RIYA BAWRI ETC.

                   RESPONDENT- MARK ALEXANDER DAVIDSON & ORS

SUBJECT – The lawsuit involves a disagreement regarding unpaid rent payment checks. The third respondent (a partnership entity) that the appellants rented property to issued many bounced checks. A number of respondents, including respondent number 1, were the targets of complaints made by appellants under the IPC and the Negotiable Instruments Act. Respondent No. 1 attempted to have the allegations dismissed and asserted that he had left the company prior to the cheque issuance. He originally succeeded in this endeavor in the High Court. The Supreme Court overturned the High Court's ruling and revived the complaints against Respondent No. 1.

BRIEF FACTS OF THE CASE –

1. The case involves a dispute regarding rent payments for a property situated in Meghalaya.
2. On 11th July 2015, respondent no. 3 approached appellant no. 16 to rent out her property at 13th Mile, G.S. Road, Tamulikuchigaon, Byrnihat, Ri Bhoi District, Meghalaya. The agreed monthly rent was ₹1,45,152 including taxes.
3. Respondent no. 3 issued a cheque dated 20th August 2019, drawn on HDFC Bank, Kalapahar, Guwahati Branch, for ₹1,45,152, to discharge the rent payment.
4. Between April 2019 and October 2019, respondent no. 3 issued a total of 22 cheques (various dates) to the appellants for rent payments. All these cheques were dishonored by the bank due to insufficient funds.
5. Appellant no. 1 issued a notice dated 9th December 2019, invoking Section 138 of the Negotiable Instruments Act, calling upon respondent no. 3 to pay the cheque amounts.
6. After the 15-day notice period elapsed, appellant no. 1 filed criminal complaints against respondents no. 1 to 4 under Section 138 of the NI Act and various sections of the IPC.
7. Subsequently, other appellants (appellants no. 2 to 4 and others) filed similar criminal complaints, totalling 22 complaints in all, against the respondents.
8. The Judicial Magistrate of the First Class took cognizance of these cases and issued summons to the respondents.
9. Respondents no. 1 and 2 filed petitions under Section 482 of the CrPC seeking to quash the summoning order and the criminal complaints against them. They argued that they should not be held liable.
10. The High Court, after hearing both parties, quashed the criminal complaints and set aside the summoning order for respondents no. 1 and 2. They were absolved of prosecution.
11. The appellants appealed the High Court's decision, arguing that respondent no. 1's retirement from the partnership firm was not established sufficiently.
12. The Supreme Court allowed the appeals, reinstating the complaints against respondent no. 1, as it was held that the issue of retirement required evidentiary examination during trial proceedings

IMPORTANT PROVISIONS –

Negotiable Instruments Act, 1881 (NI Act) :

1. Section 138 - creates a statutory offense for dishonoring checks where there are insufficient funds in the account that the account holder maintains with the banker and when the amount that is scheduled to be paid from that account by a contract made with that bank as specified in the act exceeds that amount.
2. Section 141 – Along with the Company, everyone who was in control of and accountable to the Company for the Company's conduct of business at the time the offense was committed shall be found guilty of the offense under Section 138 of the NI Act.

Section 142 – Recognition of wrongdoing, recognizance of offenses 

1. under Section 142. Any offense punished under Section 138 shall not be tried in a court lower than that of a Metropolitan Magistrate or a Judicial Magistrate of the first class.

Indian Penal Code, 1860 (IPC):

1. Section 420 – states that committing fraud and coercing the delivery of property. The highest penalty that can be imposed in accordance with this clause is a seven-year prison sentence as well as a fine.
2. Section 418 – The punishment for cheating is either imprisonment of either description for a term that may extend to three years, a fine, or both. It also includes the possibility of both. The person who cheats with the knowledge that he is likely to thereby cause wrongful loss to a person whose interest in the transaction to which the cheating relates, he was bound either by law or by legal contract, is punished.
3. Section 417 – states that a penalty for lying, anyone caught cheating will face a fine, either type of jail for a time that can last up to a year, or both.
4. Section 403 – Any person found guilty of dishonestly appropriating or converting any movable property for their own use faces a possible two-year sentence in prison, a fine, or a combination of the two.
5. Section 409 – Criminal breach of trust in relation to property is punishable by life in prison or by imprisonment of either description for a term that may extend to ten years, as well as by fine. This punishment applies to anyone who is in any way entrusted with property or who has any dominion over the property in their capacity as a public servant or in the course of their business as a banker, merchant, factor, broker, attorney, or agent.
6. Section 406 – specifies the penalty for a criminal breach of trust. According to the clause, "Whoever commits criminal breach of trust shall be punished with either description of imprisonment for a term which may extend to three years, or with fine, or with both."

Code of Criminal Procedure, 1973 (CrPC):

1. Section 482 - gives the High Court the inherent authority to issue any orders required to uphold the interests of justice or to stop misuse of the legal system.

ISSUES RAISED - Whether respondent No. 1, who claimed retirement, should be held accountable?

OVERVIEW – In this case, the property owners (appellants) and a partnership firm (respondent no. 3) are at odds over unpaid rent payment checks. The appellants filed complaints against various respondents, including respondent number 1, under the Negotiable Instruments Act and the IPC. Respondent No. 1 claimed to have left the company prior to the cheque distributions, raising the issue of liability. Initially, the complaints against respondent No. 1 were dismissed by the High Court. The appeals sought to get these complaints reinstated and ultimately succeeded in restarting the case against Respondent No. 1.

ARGUMENTS ADVANCED BY THE APPELLANT –

1. The appellant maintained that the first respondent asserted to have left the partnership firm at the time the disputed checks were written. However, the appellant said that until a public notice was published on 09.02.2022, which came a long time after the complaints had been filed and the trial court had given the summons order, there was no evidence in the record confirming this retirement.
2. The appellant argues that the Retirement Deed dated 01.04.2018, provided by respondent no.1, should not be considered as decisive evidence in quashing proceedings and should be given more consideration during the trial.
3. The appellant claims that respondent No. 1 is accused of engaging in the alleged offenses because of allegations that they actively managed the firm's activities as a partner and were in control of them. The appellant contends that it would be an abuse of the judicial system to let Respondent No. 1 avoid prosecution based only on a Retirement Deed.
4. The public notice of respondent no. 1's retirement was released much later, on 09.02.2022, according to the appellant, casting doubt on the validity of the retirement claim. The appellant emphasizes that the ability to terminate legal actions under Section 482 of the Code of Criminal Procedure should only be used where there is convincing evidence of innocence.
5. The appellant emphasizes the 'innocent unless proven guilty' principle and claims that it is up to the trial court to weigh the available evidence and determine guilt or innocence. The appellant contends that because the Retirement Deed serves a self-serving purpose, it should be analyzed throughout the trial alongside other circumstantial evidence and witness testimony rather than being taken at face value.

ARGUMENTS ADVANCED BY THE RESPONDENT –

1. According to the respondent, they delivered a Retirement Deed dated 01.04.2018 that made it obvious they were leaving the partnership firm. This paper should be viewed as indisputable proof of their separation from the company. The respondent claims that on February 9, 2022, a public notice regarding their retirement from the company was published, further indicating their exit from the industry.
2. The respondent notes that Section 482 of the Code of Criminal Procedure, which permits the quashing of proceedings when it serves the interests of justice, was properly interpreted in the High Court's decision to quash the complaints.
3.  The respondent argues that they shouldn't be held accountable for the alleged violations linked to the rent-related checks because they had no involvement in the business affairs of the partnership firm after they retired.
4. The respondent claims that because there is no proof of their consent or complicity in the issuance of the checks, they are not liable for the claimed offenses. The respondent claims that charging them after they had left the company would be an abuse of the legal system and lead to unfair hardship.
5. The response emphasizes that there is insufficient evidence to convict them and that they should, like any other accused person, be presumed innocent until proven guilty.
6.  The respondent claims that their retirement is sufficiently and unmistakably proven by the Retirement Deed and the accompanying public announcement, exempting them from criminal responsibility.

JUDGEMENT ANALYSIS –

In this judgment, the court ruled in favor of the appellant, setting aside the High Court's decision to quash the summoning order and complaints against the respondent no.1. The court emphasized that the timing of the retirement claim, delayed public notice, and circumstantial evidence warranted a trial rather than quashing the charges. The judgment highlights the principle of 'innocent until proven guilty' and the need for evidence to establish guilt or innocence, reinforcing the importance of due legal process. The judgment underlines that the mere presentation of a Retirement Deed is insufficient to conclusively determine innocence and should be assessed alongside other evidence during trial. Additionally, it 

emphasizes the need to employ the right to halt legal procedures with caution and only in cases where there is clear evidence of innocence, which was not the case in this instance. By preserving the presumption of innocence and ensuring a fair legal procedure, this decision permits the trial court to decide a defendant's guilt or innocence based on the merits of the case.

CONCLUSION –

Finally, the court's ruling in this case affirmed the appellant's rights. The High Court's decision to invalidate the summoning order and complaints against Respondent No. 1 was overturned by the court. The main issue centered on the respondent's alleged departure from the partnership company and its timing, which was called into question by a postponed public announcement. The court emphasised that the right to halt proceedings must be used carefully and that the mere presentation of a Retirement Deed was insufficient to definitively establish innocence. This ruling highlights the significance of a fair trial, the presumption of innocent, and the requirement for due process in order to determine guilt or innocence based on the merits of the case.