The Court Ordered An Independent Investigation Due To The Settlement Of The Parties’ Legal Dispute In A Manner Not ‘above The Board’ Under Section 138 Of The Ni Act.

CASE TITLE:

Mr. Dinesh Agnani, Sr. Adv. with Ms. Madhu Sudan Bhayana, Mr. Vikrant Rana vs Mr. Siddharth Dave, Sr. Adv., Mr. Jeevesh Nagrath, SPP

DATE OF ORDER:

18^TH December,2023

BENCH:

HON'BLE MR. JUSTICE JASMEET SINGH

PARTIES:

Plaintiff: Mr. Dinesh Agnani, Sr. Adv. with Ms. Madhu Sudan Bhayana, Mr. Vikrant Rana,

Respondent: Mr. Siddharth Dave, Sr. Adv., Mr. Jeevesh Nagrath, SPP

SUBJECT: In CC No. 3452/1, "The State Trading Corporation of India Ltd. v. Akshata Mercantile Pvt. Ltd. & Ors.," the learned MM of Patiala House Court, New Delhi, is seeking the initiation of contempt proceedings for violating the undertaking given on August 4, 2014.

OVERVIEW:

• The Petitioner company filed a complaint against Respondent Nos. 1 and 2, and Akshata Mercantile Pvt. Ltd. (hereinafter “AMPL”) under Sections 138, 141, and 142 of the Negotiable Instruments Act, 1881 (hereinafter “NI Act”). The complaint stated that Respondent Nos. 1 and 2, acting on behalf of AMPL, approached the Petitioner-company and requested financial assistance so that AMPL could import and purchase HR coil/HMS1 and 2 etc. (hereinafter “raw material”) from both domestic markets and foreign nations.
• Following a series of talks and negotiations, the petitioner company agreed to provide financial support to AMPL so that it could purchase goods from both domestic and foreign markets.
• The Petitioner and AMPL executed and signed the Memorandum of Agreement (henceforth referred to as the "MOA") and its addendum on 26.11.2007/23.04.2009 and 18.03.2008/22.05.2008, respectively. The documents included all terms and conditions that had been mutually agreed upon by the parties.
• In accordance with MOA Clause 1.0, AMPL was responsible for locating and concluding raw material procurement agreements with foreign and Indian suppliers and notifying the petitioner of pertinent information regarding quantity, specifications, cost, shipment/delivery schedule, etc. After receiving the information, the petitioner was required to open an international or Indian Letter of Credit (henceforth referred to as the "L/C") in the supplier's name for each invoice or transaction.
• Additionally, AMPL had a duty to pay the balance of the L/C by the due date specified. The MOA also specified that late payments would result in interest charges of 15%–18% annually.
• At AMPL's request, the petitioner opened 69 L/Cs in the suppliers' favor; of these, 7 L/Cs had significant late payments, amounting to Rs. 124 crores (interest excluded). Well, it is declared that Respondent No. 1 had received the material pertaining to these 7 L/Cs in a proper manner.

• The petitioner gave its bankers two cheques, No. 013059 dated August 20, 2011 for Rs. 20 crores and No. 013060 dated August 31, 2011, for Rs. 20 crores, to be collected; however, both checks were returned with the notation "Funds Insufficient" upon presentation.
• In order to liquidate the amount of dishonoured checks, the Petitioner sent legal notice dated September 9, 2011, to Respondent Nos. 1 and 2 as well as AMPL. Despite receiving the legal notice, nothing was done.
• On October 22, 2011, the Petitioner filed a criminal complaint under Section 138 of the NI Act in Patiala House Court, New Delhi, against AMPL and Respondent Nos. 1 and 2. The complaint was filed due to the mishandling of the checks.
• On August 4, 2014, Respondent No. 3, speaking for AMPL and Respondent Nos. 1 and 2, informed the learned Trial Court that the Petitioner had accepted the proposal of AMPL dated July 22, 2014, which stated that AMPL had irrevocably promised to repay the Petitioner-company an amount of Rs. 10 crores to Rs. 15 crores each and every month going forward, without protest or hesitation, and to make sure that the Petitioner's outstanding balance is settled within a period of six to eight months. The first payment date for 2014 was August 1st.
• The unpaid debt owed by AMPL to the petitioner was valued at Rs. 1,00,05,39,803/-, and this information was included in the 31 July 2014 statement of account that was submitted to the Trial Court on August 4, 2014.
• The complaint was sent back to the petitioner on October 20, 2014, so that they could file it in the relevant court in light of the ruling made by the Honourable Supreme Court in Dashrath Rupsingh Rathod v. State of Maharashtra, (2014) 9 SCC 129. Since the checks were drawn on a Mumbai-based bank branch, the Mumbai courts were given jurisdiction to try the case, according to the ruling.
• The complaints were then filed again in Patiala House Court, New Delhi, in light of the Negotiable Instruments (Amendment) Second Ordinance 2015.
• The current contempt petition was filed because the Respondents failed to make payments in accordance with the undertaking made prior to the learned MM's ruling on August 4, 2014.

          ARGUMENTS ADVANCED BY THE PETITIONER

• The knowledgeable attorneys representing the petitioners contend that the respondents have never contested the liability that is owed to and payable to the petitioner, but rather have consistently acknowledged it. Time has passed, and once more acknowledged and declared by the Respondents, including on April 8, 2014, that the parties have settled the dispute and that the Petitioner will receive payments in full as well as some partial payments. Therefore, there is no disagreement about the Respondents' obligation to the Petitioner.
• According to the statement, on August 4, 2014, the Board of Directors duly authorized Respondent No. 3, the General Manager of AMPL, to give an undertaking before the Trial Court regarding AMPL's instructions and the Respondent Nos. 1 and 2, by providing such a false undertaking, have deceived the Trial Court and caused it to postpone ruling on the Petitioner's complaint.

ARGUMENTS ADVANCED BY THE RESPONDENT

• According to the learned senior counsel representing the respondents, the order dated 04.08.2014 must be read in conjunction with the letter for proposal to settle dated 22.07.2014 and the statement recorded on 04.08.2014 in order to determine whether or not the respondents violated any undertaking. According to the letter dated July 22, 2014, the petitioner will receive payments of between Rs. 10 and 15 crores every month to settle their outstanding balance in a span of 6 to 8 months. The document dated August 4, 2014, documents said:
• ‘We have reached a settlement regarding the current issue. In compliance with the settlement, the defendant has submitted a letter dated July 22, 2014. Likewise, Ex. AW 1/1. The accused has consented to follow the guidelines in the aforementioned letter. The complainant's AR has consented to release the items in accordance with the settlement.’
• As a result, the undertaking or statement made before the learned Trial Court was a two-way agreement in which the Petitioner consented to release the goods and the Respondents agreed to make payments.
• It is argued that although the Respondent sent the Petitioner request letters requesting the issuance of delivery orders for the payment of the outstanding dues, the Petitioner broke the terms of the undertaking by failing to issue any delivery orders. It is further contended that the Petitioner had, in fact, sold the goods at auction on the open market rather than releasing them to AMPL. The pledge made in front of the knowledgeable Trial Court would become null and void by virtue of the products being sold. Additionally, the Petitioner argued in court that although the payment was made in relation to the same debt, given that it was made prior to the undertaking being given on August 4, 2014, the Petitioner ought to have released the goods.

JUDGEMENT ANALYSIS:

• With pleasure, the Honourable Supreme Court ordered, on August 25, 2023, that CM APPL 26480/2020 be heard as soon as possible. In compliance with the aforementioned directive, the matter's hearing was postponed from October 19, 2023 to September 19, 2023, the matter was heard.
• On October 12, 2015, this Court was inclined to order an independent investigation because it appeared that the Petitioner and the Respondents had settled their legal dispute in a way that was "not above board" in proceedings brought under Section 138 of the NI Act. But astute senior counsel representing the Respondents requested a postponement of the order directing the investigation, stating that the Respondents would like to settle their accounts with the Petitioner and would pay any outstanding balances. The Respondent No. 2 was in the courtroom on this particular date.
• This Court recorded in an oral judgment on September 23, 2016, that the Respondents have only given the Petitioner an amount of Rs. 10.50 crores in compliance with the order dated October 12, 2015. Additionally, it was noted that the Respondents argued in the additional affidavit submitted by Respondent No. 2 that they owed the Petitioner an amount of Rs. 2,28,39,832.44/-because they had overpaid. But according to the knowledgeable ASG, as of April 30, 2016, Rs. 1,041,872,755/-was still owed and payable in accordance with the settlement.
• On September 23, 2016, this Court ordered a CBI investigation into the parties' entire transaction, based on the initial presumption that the behavior of the Petitioner and the Respondents was "dubious" and "not above board."
• The CBI conducted an investigation in accordance with the aforementioned order, and on December 5, 2016, it filed a preliminary inquiry registration report. The CBI registered a preliminary inquiry with the number PE221/2016/E0008 in accordance with its protocol.
• Following the PE's registration, the CBI carried out an investigation and filed a report on January 31, 2017. It was discovered that the Petitioner-STC officers had seriously violated the guidelines in following them when approving the Respondents' credit facility. Serious irregularities amounting to criminal misconduct involving Respondents and Petitioner-STC officials were also discovered by the CBI.
• The knowledgeable senior counsel representing the Respondents argues that the CBI's role should have ended in light of the directive given by this Court requiring the agency to submit a preliminary report and a subsequent report. The complainant is listed as being "as per Delhi High Court order dated 23.09.2016" in the preliminary enquiry with reference number PE221/2016/E0008 dated December 5, 2016. It is contended that this Court did not issue the directive for the aforementioned PE registration, and the CBI abused this directive.
• It is further stated that even if the preliminary inquiry is permitted to proceed, Respondent No. 1 should be shielded from its scope because the primary case that gave rise to the current contempt proceedings against Respondent No. 1 has been quashed; as a result, no actions should be taken against Respondent No. 1.
• According to the court, the order dated September 23, 2016, merely instructs the CBI to investigate the parties' transactions, which this court has deemed to be "dubious" and "not above board." The type of inquiry and the way the CBI is to conduct it have not been prescribed or directed by this Court. When the Court issued the order on September 23, 2016, it was well within its rights to draw attention to matters that don't seem trustworthy or well-founded, particularly when a PSU is handling public funds. Only the orders dated 23.09.2016 and 12.10.2015 served as the catalysts for the CBI's investigation into the transactions between the Respondents and the Petitioner-STC.
• The court is not inclined to entertain the current application for the aforementioned reasons, and it is dismissed.
• The CBI has the right to carry out the investigation and move forward legally.

CONCLUSION:

• With the exception that the alleged contempt is of the order dated 04.08.2014 before the learned MM in CC No. 3453/1, the facts of the current contempt are similar to those of CONT.CAS(C) 232/2015. The current contempt case is handled in accordance with the ruling in CONT.CAS(C) 232/2015 due to parity and the previously mentioned reasons.
• The court believes that Respondent No. 2 in this case is also guilty of contempt and should receive the appropriate punishment.
• In order to demonstrate why he shouldn't be punished for contempt for failing to comply with the undertaking given before the learned MM on August 4, 2014, Respondent No. 2 has been given four weeks to file a reply.
• The order of CM APPL. 26480/2020 in CONT.CAS(C) 232/2015 is to be interpreted as the order in this application as well for CM APPL. 26875/2020.
• Set aside February 29, 2024, as the date for additional proceedings, during which Respondent No. 2 will continue to be in court.