2022 (4) TMI 1434 - SC - Indian Laws

Dishonor of Cheque - insufficiency of funds - legally enforceable debt or liability - rebuttal of presumption u/s 118 of the N.I. Act - whether summons and trial notice should have been quashed on the basis of factual defences? - what should be the responsibility of the quashing Court? - whether it must weigh the evidence presented by the parties at a pre-trial stage? - HELD THAT - The transactional arrangement between the complainant and the accused reveals the nature of obligations that both had undertaken. The cheques in question were accepted by the complainant for an agreed price consideration for the shares in the appellant s company. According to the complainant the appellant is to first pay and then as per the usual practice in the trade the shares would be transferred to the appellant in due course within the time permitted by law. A bare perusal of Section 56(1) of the Companies Act 2013 indicates that a transfer of securities of a company can take place only when a proper instrument of transfer is effectuated - in shares transactions there is a time lag between money going out from the buyer and shares reaching to the seller. In earlier days the time gap was longer. It has now become speedier but the gap still remains. The share transactions in India generally follows this pattern. It is also relevant to bear in mind that the burden of proving that there is no existing debt or liability is to be discharged in the trial. On careful reading of the complaint and the order passed by the Magistrate what is discernible is that a possible view is taken that the cheques drawn were in discharge of a debt for purchase of shares. In any case when there is legal presumption it would not be judicious for the quashing Court to carry out a detailed enquiry on the facts alleged without first permitting the trial Court to evaluate the evidence of the parties. The quashing Court should not take upon itself the burden of separating the wheat from the chaff where facts are contested. To say it differently the quashing proceedings must not become an expedition into the merits of factual dispute so as to conclusively vindicate either the complainant or the defence. The consequences of scuttling the criminal process at a pre-trial stage can be grave and irreparable. Quashing proceedings at preliminary stages will result in finality without the parties having had an opportunity to adduce evidence and the consequence then is that the proper forum i.e. the trial Court is ousted from weighing the material evidence. If this is allowed the accused may be given an un-merited advantage in the criminal process - to non-suit the complainant at the stage of the summoning order when the factual controversy is yet to be canvassed and considered by the trial court will not in our opinion be judicious. Based upon a prima facie impression an element of criminality cannot entirely be ruled out here subject to the determination by the trial Court. Therefore when the proceedings are at a nascent stage scuttling of the criminal process is not merited. The High Court rightly declined relief to the accused in the quashing proceeding. Having said this to rebut the legal presumption against him the appellant must also get a fair opportunity to adduce his evidence in an open trial by an impartial judge who can dispassionately weigh the material to reach the truth of the matter - Appeal dismissed.

Issues Involved:
1. Quashing of Summoning Order and Notice Framing under Section 138 of the Negotiable Instruments Act.
2. Legally Enforceable Debt or Liability.
3. Presumption of Legally Enforceable Debt.
4. Scope of Section 482 of the Cr.P.C. in Quashing Proceedings.
5. Burden of Proof and Rebuttable Presumption.
6. Evaluation of Factual Defenses at Pre-trial Stage.
7. Parameters for Invoking Inherent Jurisdiction to Quash Criminal Proceedings.

Issue-wise Detailed Analysis:

1. Quashing of Summoning Order and Notice Framing under Section 138 of the Negotiable Instruments Act:
The appeals challenged the Delhi High Court's dismissal of an application under Section 482 of the Cr.P.C. for quashing the summoning order dated 1.6.2018 and the order framing notice dated 3.11.2018. The High Court opined that the grounds raised by the appellant were "factual defences" which should be considered during the trial, not in a petition under Section 482 Cr.P.C.

2. Legally Enforceable Debt or Liability:
The appellant argued that the dishonoured cheque was not against a "legally enforceable debt or liability" as it was a contingent/security cheque for the buyback of shares. The complainant contended that the presumption of a legally enforceable debt arises when a cheque is issued and dishonoured, and it is for the accused to rebut this presumption by adducing evidence during the trial.

3. Presumption of Legally Enforceable Debt:
The complainant emphasized that under Section 118 of the N.I. Act, there is a presumption of a legally enforceable debt when a cheque is dishonoured. This presumption is rebuttable, but the burden lies on the accused to provide necessary evidence during the trial.

4. Scope of Section 482 of the Cr.P.C. in Quashing Proceedings:
The High Court referred to precedents like HMT Watches Limited vs. M.A. Abida and Rajiv Thapar vs. Madan Lal Kapoor, emphasizing that the power under Section 482 Cr.P.C. should be exercised sparingly and only when the material produced irrefutably rules out the charges. The Court should not negate the complainant's case without allowing evidence to be led.

5. Burden of Proof and Rebuttable Presumption:
The judgment reiterated that the burden of proving the absence of an existing debt or liability lies with the accused, as highlighted in M.M.T.C. Ltd. vs. Medchl Chemicals and Pharma (P) Ltd. The presumption under Section 139 of the N.I. Act includes the existence of a legally enforceable debt or liability, which the accused can contest by raising a defense during the trial.

6. Evaluation of Factual Defenses at Pre-trial Stage:
The Court emphasized that disputed questions of fact should be adjudicated after evidence is adduced. The High Court should not quash a complaint under Section 138 of the N.I. Act at a pre-trial stage based on factual defenses, as doing so would prematurely extinguish the case without allowing the trial Court to evaluate the evidence.

7. Parameters for Invoking Inherent Jurisdiction to Quash Criminal Proceedings:
The judgment cited the principles from State of Haryana v. Bhajan Lal, stating that the power to quash criminal proceedings should be exercised sparingly and only in the rarest of rare cases. The Court should not embark on an enquiry into the reliability or genuineness of the allegations at the pre-trial stage.

Conclusion:
The Supreme Court upheld the High Court's decision, stating that the factual controversy should be resolved during the trial, not at the pre-trial stage. The presumption of a legally enforceable debt under Section 139 of the N.I. Act should be given due weightage, and the accused must be given a fair opportunity to rebut this presumption during the trial. The appeals were dismissed, and the parties were left to bear their own costs.

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