2015 (9) TMI 240 - HC - Indian Laws

Dishonour of cheque - Cheques given in persuance of rent due - Held that - Appellant and the other co-owners are the owners and the landlords of the premises in question; premises in question was leased out by five different lease deeds to the respondent/lessees by the five co-owners in respect of their undivided 1/5th share each on a monthly rent of ₹ 1,10,000/- for each of the co-sharers, i. E. ₹ 5,50,000/- in the aggregate; lease had not been surrendered by the lessee, and; the advance cheques issued by the lessee towards payment of rent were dishonoured upon presentation. Pertinently, the lease agreements also provided for payment of interest on the overdue amount of arrears of rent @ 18% p. A. However, the cheques in question did not pertain to the said claim for interest. They pertained only to the monthly rent, which is an ascertained and crystallized liability. It is equally pertinent to note that the respondents admitted their liability in their reply dated 23.05.2009 and conveyed their intention to clear the cheques and stated that they were dishonoured due to their tight financial position. Advance cheques had been issued towards payment of rent by the respondent/lessees. The respondents continued to remain tenants and incurred the liability to pay rent month to month. The advance cheques issued towards payment of rent when deposited for realization of the rent for the said period were dishonoured upon presentation. The respondent/lessees incurred the liability to pay the rent as they continued to retain possession even though the same had been sealed by the municipal authorities. Thus, reliance placed on Indus Airways (2014 (4) TMI 464 - SUPREME COURT) by the learned MM is completely misplaced and this is yet another serious error of law found in the impugned judgment. - Impugned order is set aside - Decided in favour of appellant.

Issues Involved:
1. Competency of the attorney to file the complaint.
2. Validity of the lease agreement under law and public policy.
3. Alleged misrepresentation or concealment of material information by the lessor.
4. Applicability of the doctrine of frustration due to the sealing of the premises.
5. Nature of the cheques issued-whether they were advance/security cheques or issued in discharge of a subsisting liability.

Detailed Analysis:

1. Competency of the Attorney to File the Complaint:
The learned Metropolitan Magistrate (MM) ruled in favor of the appellant, holding that the complaint was filed by a competent authority. The attorney, Mr. Vipin Batra, was duly appointed by the complainant and her sisters through a General Power of Attorney (GPA) dated 23.06.2008, authorizing him to act on their behalf.

2. Validity of the Lease Agreement:
The MM found that the lease agreements were not void ab initio and were not forbidden by law or against public policy. The agreements were entered into for leasing the premises for a restaurant business, and no statutory or regulatory provisions were breached at the time of execution.

3. Misrepresentation or Concealment by the Lessor:
The MM concluded that there was no misrepresentation or concealment of material information by the lessor. The lease agreements were valid, and the terms were clear and agreed upon by both parties.

4. Doctrine of Frustration Due to Sealing of Premises:
The MM held that the doctrine of frustration did not apply. The sealing of the premises by the Municipal Corporation of Delhi (MCD) due to unauthorized construction did not absolve the lessee from the obligation to pay rent. The lease agreement could not be considered frustrated by supervening third-party conduct, and the lessees were still bound to perform their contractual obligations.

5. Nature of the Cheques Issued:
The MM ruled that the cheques were advance cheques, issued before the liability to pay rent had crystallized. The premises were sealed, and the restaurant business could not commence, leading to the conclusion that the cheques were not issued in discharge of a subsisting liability. Reliance was placed on the Supreme Court judgment in M/s Indus Airways Pvt. Ltd. vs M/s Magnum Aviation Pvt. Ltd., which emphasized that for an offense under Section 138 of the NI Act, there must be a legally enforceable debt or liability subsisting on the date of drawal of the cheque.

Appellate Court's Analysis:

Competency and Validity of Lease Agreement:
The appellate court agreed with the MM's findings that the complaint was filed by a competent authority and that the lease agreements were valid and not void ab initio.

Misrepresentation and Frustration:
The appellate court also concurred that there was no misrepresentation by the lessor and that the doctrine of frustration did not apply. The lessees had the option to surrender the lease but chose not to, thereby continuing their obligation to pay rent.

Nature of Cheques and Legal Liability:
The appellate court disagreed with the MM's interpretation regarding the nature of the cheques. It held that the cheques were issued towards payment of rent, a crystallized liability, and their dishonor constituted an offense under Section 138 of the NI Act. The court emphasized that the lessees' failure to surrender the lease meant they were still liable to pay rent, regardless of the sealing of the premises.

Conclusion:
The appellate court allowed the appeal, set aside the MM's judgment, and convicted the respondents under Section 138 of the NI Act. The court found that the MM had erred in law by misapplying the doctrine of frustration and the nature of the cheques, leading to a grave miscarriage of justice.

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