This article has been written by Alfaiz Nizami pursuing the Diploma in Business Laws for In-House Counsels from LawSikho. This article has been edited by Prashant Baviskar (Associate, Lawsikho) and Ruchika Mohapatra (Associate, Lawsikho). 

Introduction

“It is not the enactment but the observations of the laws, that creates the character of the nation” – Calvin Coolidge.

India is becoming a hub for start-ups and businesses but whenever there is some consideration there is bound to be a dispute. The shoulders of the Indian judiciary, especially High courts and Supreme court are burdened with cases related to negotiable instruments. From time to time courts have been giving landmark judgments related to this law, so that the subordinate courts are able to deal with matters concerning negotiable instruments in a more steady and efficient manner. Article 227 in the Constitution of India has the power of superintendence over all courts by the High Court throughout the territories correlation to which it practices jurisdiction. However, its decisions are seen kept at equal footing by the courts of other states most of the time. In the present case Sarvesh Bisaria vs Anand NirogDham Hospital Pvt Ltd, the High court of Delhi passed a landmark judgment concerning a criminal case filed u/s 138 of negotiable instruments act, 1881 (hereinafter be referred as “act”). The judgment clarifies a principle of cognizance, that is, a mere cognizance by metropolitan magistrate u/s 138 of the act would not automatically follow a decree against the accused. In this article, I will discuss the brief facts of the above case and analyze the judgment of the Honorable High court. 

Brief facts of the case

1. The plaintiff states that the plaintiff and respondent knew each other well and had family/friendly relations with each other. In lieu of such friendly relations the petitioner:

• Rendered a loan of Rs 18 ,000,00 to Shri Hari Om Anand (hereinafter be referred as the ‘respondent’) (managing director of the respondent)/ (sole proprietor of Anand Medical store) – 6^th November, 2015
• Rendered another loan of Rs 3,20,000,00 to respondent – 
• The plaintiff was also rendering legal consultation to the respondents. 

2. According to the petitioner, the respondent issued six cheques after deducting TDS. The plaintiff filed a criminal complaint under Section 138 of the Negotiable Instruments Act after the cheques were dishonoured on presentation due to a lack of funds. The plaintiff also claims that a notice was sent dated 6th April, 2019, however the respondent did not reply to the notice. 

3. Thereafter, a criminal case was initiated under Section 138 of Negotiable Instruments Act by the plaintiff(Sarvesh Bisaria) against the respondent (Anand NirogDham Hospital Pvt Ltd), along with the Managing Director and other directors of the respondent. 

4. While the case was pending on the summons stage, the plaintiff sent a Demand Notice on 10th August, 2019 thereby claiming Rs.1,50,00,000/- along with the unpaid TDS of Rs.15,00,000/- and interest. However, the respondent failed to reply to this notice as well. 

5. Therefore, a suit for recovery was filed of Rs 1,65,75,000/- under Order XXXVII of the Code of Civil Procedure, 1908. 

6. The respondent after a fresh notice/summon was served on him, finally appeared and furnished a corporate guarantee with immovable property documents. The court thereby lifted the restriction on his bank account. 

This petition before the hon’ble court has been filed challenging the two orders of the trial court in which comprise:

1. Permission to place photocopies of the immovable property as security deposit was granted by the trial court – dated 18^th January, 2020.
2. Permission to defend the case was granted to the respondent – dated 24^th January, 2020.

The relief sought for order dated 18^th January, 2020 was satisfied by the order dated 4th December, 2020, when a fixed deposit of Rs 1.5 was deposited.  

Issue

1. Whether the trial court was right in accepting the photocopies of the immovable property as security deposit?

2. Whether leave to defend should be granted? 

Legal provisions  

Following are some sections that were referred to in the study of the case- 

Section 138 of the Negotiable Instruments Act

Section 138 of the Negotiable Instruments Act is a penal provision that deals with the punishment of dishonour of cheque due to non-payment or insufficient balance.  It defines negotiable instruments as “a promissory note, bills of exchange or cheque payable either to order or to bearer”. A negotiable instrument is a written document that guarantees its bearer the payment on demand.

According to Section 138 of the act, in order for a cheque to be considered as dishonoured it

must satisfy the following conditions:

1. A person must have drawn a cheque for payment of money to another for the discharge of any debt or other liability;

2. That cheque has been presented to the bank within a period of Six months (i.e., 180 days);

3. That cheque is returned by the bank unpaid, either because of insufficient funds or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank;

4. The payee makes a demand for the payment of the money by giving a notice in writing to the drawer within thirty (30) days of the receipt of information by him from the bank regarding the return of the cheque as unpaid;

5. The drawer fails to make payment to the payee within fifteen (15) days of the receipt of the notice.

The cause of action arises only when the drawer of cheque fails to make payment within 15 days of the receipt of the notice. 

Section 251 in the Code of Criminal Procedure, 1973 

Under Section 251 in the Code of Criminal Procedure, the accused is brought before the Magistrate and the facts of the case of which he is accused are stated to him. He is asked if he pleads guilty or has anything to say in his defence, but it shall not be obligatory to frame a formal charge.

Arguments by the petitioner’s side

The petitioner’s counsel argued before the court that the signature of those six cheques are not disputed in regard to which the proceedings u/s 138 are pending. He further argued that a cognizance has been taken by the court and a notice u/s 251 crpc has also been served therefore it is to presumed that the accused is guilty and suit should be decree under order XXXVII CPC.

Arguments by the respondent’s side

The respondent’s counsel argued that the leave to defend was granted rightfully to them. He claims that the cheque book was issued in 2013, and the six cheques were plainly in the custody of the plaintiff for several years, indicating that they were offered as security rather than for any legal duty. There was no document to establish a lawyer-client relationship, and no retainership agreement had been submitted, thus the petitioner’s assertion that he was entitled to Rs.1.50 crores for legal help is ambiguous. 

The counsel further argued with respect to the payment of 30 lacs for legal consultancy to the petitioner, by stating that the payment was not made by the hospital but from the account of Shri Hari Om. 

Judgment

The court after examining all the issues held that:

• The petitioner’s grievances on the order dated 18^th January, 2020 are no longer valid as an FDR for a sum of Rs 1.5 crores has been furnished. 

• The issue with regard to leave to defend is also settled, as the plaintiff himself has admitted in his plaint regarding loans being rendered to the respondent. Therefore, the fact that there is some business transaction is not disputed. However, the plaintiff has contended that the loan is a separate transaction and not to be confused with the legal consultancy fees. The court observes that this matter needs to be dealt in the trial. 

• Whether the invoices raised were for legal consultancy fees is also a matter which needs to be proved in trial. 

The Hon’ble court has justified its order and stated:

“With regard to the submissions made by the learned counsel for the petitioner/plaintiff, on taking cognizance of an offence by the learned MM under Section 138 of the N.I. Act automatically a decree against the respondent/defendant should follow, cannot be accepted, as cognizance leads to trial and the accused can also get acquitted”

Therefore, the petition was declared devoid of merit and got dismissed. 

Analysis and conclusion

The Hon’ble Court was right in dismissing the petition as the case involves issues related to facts and not law. Therefore, there was no ground for the trial court to not allow the leave to defend to the respondent. The liability of the parties needs to be decided through trial. It is to be followed as a principle that mere cognizance of a criminal complaint u/s 138 of the act will not render a decree against the accused. According to Section 143(3) of the Act, trials are to be completed within 6 months. If the facts of the case prima facie establish existence of dispute, then the courts should follow the procedure established by law and give their judgments based on evidence placed on records. 

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