CRL.M.C. 2072/2006 1 of 28 IN THE HIGH COURT OF DELHI AT NEW DELHI Date of order : 23rd January, 2008 CRL.M.C. 2072/2006 GURU SWARUP SRIVASTAVA ..... Petitioner Through Mr. Sunil Gupta, Sr. Advocate with Mr. Jatin Zaveri, Advocate. versus NATIONAL AGRICULTURAL COOP.MARKETING FEDERATION ..... Respondent Through Mr. T.K.Ganju, Sr. Advocate with Mr. A.K.Thakur and Mr. R.K.Mishra, Advocates. CORAM: HON'BLE DR. JUSTICE S. MURALIDHAR O R D E R 1. Whether Reporters of local papers may be allowed to see the order? Yes 2. To be referred to the reporter or not? Yes 3. Whether the order should be reported in the Digest? Yes Dr. S. Muralidhar, J. (open court) 1. This petition under Section 482 of the Code of Criminal Procedure, 1973 (CrPC) seeks the quashing of Complaint Case No. 3650 of 2006 pending in the Court of the learned Metropolitan Magistrate, Patiala House Courts, New Delhi (MM) titled “National Agricultural Co-operative Marketing Federation of India Ltd. (NAFED) v. M/s Swarup Group of Industries & Another” as well as the Order dated 7th February, 2006 by which the learned MM took cognizance of the complaint and issued summons to the Petitioner to face trial for the offence under Section 138 of the Negotiable CRL.M.C. 2072/2006 2 of 28 Instruments Act, 1881 („NI Act‟). Background Facts 2. The Petitioner is the proprietor of M/s Swarup Group of Industries which carries on the business of import and export, marketing and sale of several goods including iron ore. The Petitioner approached NAFED in March 2004 with the proposal for a strategic alliance for export of iron ore to China, and accordingly sought funds from NAFED. An assurance is stated to have been given by the petitioner that the firm was in a sound financial condition and that the principal along with the interest would be repaid without any default. Consequently a Memorandum of Understanding (MOU) was entered into between the parties on 24th April 2004. 3. It is stated that the NAFED paid a sum of Rs.2,35,58,41,500/- at the request of the petitioner for the purposes of procuring/exporting iron ore as agreed in the MOU. However, it is alleged that the demands were not honoured and that there were defaults in making repayments. The present complaint pertains to a cheque No.131050 dated 20th August, 2005 for a sum of Rs. 5 crores which was drawn on Lord Krishna Bank, Noida, UP in favour of the NAFED by the Petitioner, towards partial payment of the dues in terms of the MOU. 4. The aforementioned cheque when presented to the bank by NAFED was CRL.M.C. 2072/2006 3 of 28 returned dishonoured with the remarks “payment stopped by drawer”. NAFED then wrote following letter dated 23rd August 2005 to the Petitioner: “This has reference to your fax dtd. 22.8.2005 on the above subject. In the above context, it may be informed that cheque no. 131050 dtd. 20.08.2005 for Rs. 5,00,00,000.00 of Lord Krishna Bank, Noida was deposited in the bank on 20.08.2005 whereas your referred fax was received on 22.08.2005. The above cheque has been returned unpaid with the remarks “payment stopped by drawer”. The above cheque was given by you against the long outstanding dues. Instead of making efforts for honouring of the cheque, you preferred to give instructions to the banker for stopping the payment. Reason for the same may be intimated to NAFED. Further, you are aware that dishonouring of cheques is punishable crime under Negotiable Instruments Act. A copy of cheques Return Memo is enclosed. You are requested to arrange payment of the above cheque and inform NAFED, so that the cheque can be represented, otherwise we will be constrained to initiate legal proceedings under Negotiable Instruments Act. An early reply is requested.” 5. It is stated that in reply to this letter on 29th September, 2005, the Petitioner wrote to the NAFED asking it not to deposit the cheques without confirmation from the Petitioner. On 6th October 2005, the Petitioner wrote the following letter to NAFED: “Please refer to your letter no. HW/FIN/2005-06 dtd. CRL.M.C. 2072/2006 4 of 28 23.08.2005 We invite your kind invitation to our letter dtd. 20th April & 29th Sept. 05 wherein we have requested you not to deposit the cheques handed over to you without return confirmation from our office. Besides this, it was also cleared to you that these cheques were to be paid out of proceeds of discounting L/C and written confirmation. Since the discounting of L/C could not take place, this cheque should be deposited at a later date after getting our written confirmation. However, we now assure you that this cheque and all your outstandings shall possibly be cleared latest by 30.10.2005, at the time of clearance of dues this cheque of Rs. 500 crores may be re-deposited after written confirmation from our office and release of proportionate charge over our securities.” 6. According to NAFED, by a letter dated 25th October, 2005 the Petitioner was informed that the aforementioned cheque would be represented, and thereafter when the cheque was again deposited on 9th November, 2005 for realisation, it was again dishonoured. A lawyer's notice dated 7th December 2005 was then sent under Section 138 of the N.I. Act by NAFED to the Petitioner. After narrating the events that transpired till then, the notice stated as under: “I, therefore call upon you through this legal notice, to pay to my client amount of Rs.5,00,00,000/- [Rs. Five crores only] by way of demand draft or pay-order within fifteen days from the date of receipt of this legal notice, failing which my client shall be constrained to take necessary legal action under the provisions of Negotiable Instrument Act, and other laws at your risk, costs and consequences.” CRL.M.C. 2072/2006 5 of 28 7. On 16th January 2006 NAFED filed Complaint Case No. 3650 of 2006 under Section 138 NI Act in the Court of the MM, New Delhi, seeking summons to the Petitioner. After narrating the sequence of events, it was stated in para 15 of the complaint as under: “That a legal notice dated 07.12.2005 was issued to the accused party informing about the dishonor of the cheque and requesting to pay the amount of Rupees five crores only within 15 days failing which legal action would be taken as per law. A photocopy of the legal notice along with postal receipts are annexed as Annexure 9-A & 9-B to this complaint.” 8. Para 21 of the complaint referred to the cause of action for filing of the complaint in the following manner: “That the cause of action arose on 30.12.2005 when the statutory period of 15 days from the date of service of the legal notice on the accused expired and accused failed to make payment of the amount contained in the dishonoured cheque. Therefore this complaint is within limitation period.” 9. NAFED filed an affidavit dated 6th February 2006 by way of evidence in the above proceedings. Para 16 of the said affidavit, of its Deputy Manager (F&A), who was its authorised representative, is relevant for the purpose of the present petition read as follows: “That a legal notice dated 07.12.2005 was issued to the accused party informing about the dishonor of the cheque and requesting to pay the amount of rupees five crores only within 15 days failing which legal action would be taken as per law. Copy of the legal notice along with original postal receipts are CRL.M.C. 2072/2006 6 of 28 Ex. CW-9-A and 9-B.” 10. On 7th February 2006, the following order was passed by the learned MM taking cognizance of the complaint and issuing summons to the Petitioner: “07.02.2006 Present : AR of complainant with Ld. Counsel. Evidence by way of affidavit filed. Heard on summoning. File perused. The complaint is within limitation. In my view, there is sufficient material on record to summon the accused u/s 138, Negotiable Instrument Act. The accused be accordingly summoned vide PF/RC/Speed Post/Courier for 25.4.2006. Process be also sent through the SHO of the area where the accused resides. Process be also given dasti, if demanded. PF be filed within 15 days. MM/ND/07.02.2006” 11. The present petition was filed on 15th April 2006 and on 18th April 2006 the following order was passed by this Court: “Crl. Misc. No. 3322/2006 Notice for 2nd November, 2006. Learned counsel for the petitioner has urged that respondent No.2 complainant had initiated proceedings under Section 138 of the Negotiable Instruments Act on the basis of second notice dated 7th December, 2005 and not on the strength of the first notice which is against the Provisions of Section 142 of the Act. He also placed reliance on the Judgment of the CRL.M.C. 2072/2006 7 of 28 Supreme Court in Sadanandan Bhadran Vs. Madhavan Sunil Kumar (1998) 6 Supreme Court Cases 514 where too similar questions had come up for hearing. I am prima facie satisfied that it is a fit case where further proceedings in the matter be stayed. Accordingly the proceedings before the trial court shall remain stayed till further orders.” Contentions of the Parties 12. Mr. Sunil Gupta, learned Senior Advocate and Mr. Jatin Zaveri, learned Advocate presented arguments for the Petitioner and Mr. T.K. Ganju, learned Senior Advocate with Mr. A.K. Thakur, learned Advocate for the Respondent NAFED. 13. The following submissions were made on behalf of the Petitioner: (a) There was only one cheque which forms the subject matter of the dispute and therefore there can be only one dishonour leading to the commission of one offence. Once the first dishonour of the cheque has been acted upon by the payee by issuing a notice to the drawer of the cheque demanding payment there cannot be a second dishonour of the same cheque upon its presentation after the making a demand for payment on the first dishonour. In the above circumstances if the payeee fails to take action in terms of Section 138 NI Act after the first dishonour, then the payee stands “absolved” of criminal liability. It is submitted that there is no change in the law in this regard as explained by the Supreme Court in Sadanandan Bhadran v. Madhavan Sunil Kumar (1998) 6 SCC 514 even after the introduction of the proviso to Section 142 (b) NI Act. (b) In the instant case, the letter dated 23rd August 2005 constituted a CRL.M.C. 2072/2006 8 of 28 demand for payment made by the payee NAFED to the drawer after the first dishonour. In support of this submission reliance is placed on the judgment of the Supreme Court in Central Bank of India v. Saxons Farms (1999) 8 SCC 221. For reasons best known to it NAFED did not file a criminal complaint on that basis. Therefore, NAFED forfeited its right thereafter to file a complaint under Section 138 NI Act on that basis. (c) A plain reading of the complaint ultimately filed on 16th January 2006 shows that in the understanding of NAFED it was the second demand notice dated 7th December 2005 which was the proper notice under Section 138 NI Act and since it was sent by registered post, a presumption of due service was presumed although according to the petitioner the noticed was not received by him. The complaint was stated to be within limitation only on this basis. (d) Since in fact NAFED had forfeited its right to file a complaint upon its failure to take action on the first dishonour of the cheque, it could not have filed the criminal complaint on 16th January 2006 on the basis of the second dishonour. The learned MM, therefore, could not have taken cognizance of the complaint presented on 16th January 2006. (e) Without prejudice to the above, the criminal complaint filed on 16th January 2006 even if construed as being referrable to the first dishonour of the cheque in question, was beyond the period of limitation under Section 138 NI Act notwithstanding the proviso to clause (b) to Section 142 NI Act. (f) In order to invoke the proviso to Section 142 (b), there should be a specific averment in writing in the complainant itself showing „sufficient cause‟ for not making the complaint within the period CRL.M.C. 2072/2006 9 of 28 stipulated under Clause (c) to the proviso to Section 138 NI Act. Reliance is placed on the judgment in Shakti Travel & Tours v. State of Bihar (2002) 9 SCC 415. On the facts of the present case there is no such averment since the entire complaint has proceeded on the footing that the offence took place only when the second dishonour took place and that the proper legal notice was the one dated 7th December 2005. Therefore the complaint is barred by limitation and cannot be saved by the proviso to section 142 NI Act. (g) Even on the basis of the second notice the complaint was barred by limitation. Given the wording of Section 138 read with Section 142 NI Act, which expresses a “different intention”, Section 27 of the General Clauses Act, 1897 cannot be invoked to presume service of notice only because such notice has been sent by registered post. Further, there is no averment in the complainant that the notice was sent by properly addressing the notice and despatching it by registered post. It is submitted that the recent judgment of the Supreme Court in C.C. Alavi Haji v. Palapetty Muhammed (2007) 6 SCC 555 turned on its own facts as is evident from the question set out in para 2 of the judgment whereas the facts in the present case are entirely different. Not even the High Court can in exercise of its powers under Section 482 CrPC condone the delay in presenting the complaint beyond the time stipulated in Section 138 NI Act. (h) For all of the above reasons, the order dated 7th February 2006 passed by the learned MM taking cognizance is bad in law. 14. The reply on behalf of the Respondent NAFED was as under: (a) It is not disputed that the complaint filed by NAFED in which the impugned summoning order was passed, was indeed based on the understanding that the dishonour of a cheque on the second occasion CRL.M.C. 2072/2006 10 of 28 was the trigger for the initiation of the proceedings under Section 138 NI Act. In other words, it is the notice dated 7th December, 2005 which is understood as being the proper notice for the purpose of Section 138. This is clear from a careful reading of the letter dated 23rd August 2005 which is different from the letter with which the decision in Central Bank of India was concerned. (b) If indeed the second legal notice dated 7th December 2005 is the proper legal notice, and it has been sent by registered post, then the presumption of service can be drawn under Section 27 of the General Clauses Act 1897. It is submitted that that the position in law in this regard has now been settled by the judgment of the Supreme Court in C.C. Alavi Haji. The postal receipts were filed, and an averment to this effect made in the complaint and the affidavit by way of evidence of the authorised representative of NAFED also specifically adverted to this fact. (c) In view of the above circumstances, the learned MM did not err in taking cognizance of the complaint on the basis that it was within limitation, and further did not err in proceeding to issue summons to the petitioner. (d) Assuming without admitting that it is the letter dated 23rd August, 2005 which constitutes the proper legal notice, then the explanation contained in the complaint itself to the effect that the Petitioner had asked NAFED not to re-present the first cheque for a further period of time, after the expiry of which the complainant presented the cheque, does constitute “sufficient cause” for the learned MM to have, in terms of clause (b) of the proviso to Section 142 NI Act, taken cognizance of a complaint presented beyond the stipulated period under the clause (c) of the proviso to Section 138 NI Act. CRL.M.C. 2072/2006 11 of 28 (e) While exercising its powers under Section 482 CrPC, this Court would not interfere with the continuation of criminal proceedings if the net result would be the same whether the learned MM took cognizance of the offence on the basis of the letter dated 23rd August, 2005 or the later notice dated 7th December, 2005. The cheque being the same and the Petitioner not denying having signed it, law should be allowed to take its course. Issues that arise for determination 15. The material facts are not much in dispute. There has been a presentation of one cheque, admittedly signed by the petitioner, for payment twice and it has been dishonoured twice. Also it is not in dispute that after the first dishonour NAFED sent a letter dated 23rd August 2005, which according to the petitioner was the proper legal notice of demand in terms of Section 138 NI Act. On the other hand NAFED has proceeded on the footing that its notice dated 12th December 2005 is the proper one and valid one and its complaint to the learned MM is also based on this understanding. Therefore, the questions that arise for consideration in the following sequence are: (a) Whether it is the letter dated 23rd August 2005 or the notice dated 12th December 2005, which is the proper legal notice for the purposes of Section 138 NI Act? (b) If question (a) is answered by holding that it is the notice dated 12th December 2005 which is the proper legal notice, whether the complaint filed on that basis is still within limitation. In other words, in such event, will the complainant NAFED be able to avail of the CRL.M.C. 2072/2006 12 of 28 provision of deemed service in terms of Section 27 General Clauses Act 1897 given that the notice dated 12th December 2005 was sent by registered post? (c) If question (a) is answered by holding that it is the letter dated 23rd August 2005 which is the proper notice of demand for the purposes of Section 138 NI Act, then considering that no complaint has been filed by NAFED on that basis, does not the petitioner stand “absolved” of any offence under Section 138 NI Act in terms of the judgment in Sadanandan Bhadran? (d) Assuming without admitting that there is no “absolution” of the petitioner for the first offence of dishonour, then should not the petitioner have, for availing of the benefit of extended period of limitation under clause (b) of the proviso to Section 142 NI Act, specifically shown in writing “sufficient cause” for not making the complaint within time and is not the absence of such averment fatal to the complaint? (e) A related question in such event would be whether the High Court can, in exercise of its powers under Section 482 CrPC, condone the delay in NAFED making the complaint within time? The effect of the proviso to Section 142 (b) 16. Before proceeding to answer question (a) it requires to be recapitulated that clause (b) of the proviso to Section 138 NI Act mandates that within “thirty days” of the receipt by the payee of information “from the bank CRL.M.C. 2072/2006 13 of 28 regarding the return of the cheque as unpaid”, the payee should make “a demand for payment of the said amount of money by giving a notice in writing, to the drawer of the cheque.” The further stages are that in terms of clause (c) of the proviso to Section 138 NI Act, within a period of fifteen days after “receipt of the said notice” of demand, the payee should “fail to make the payment.” Thereafter, in terms of clause (a) of Section 142, the payee should make “a complaint, in writing” to a court and in terms of clause (b) thereof such complaint in writing should be made within “one month” of the expiry of fifteen days within which the drawer of the cheque is expected to make payment in terms of clause (c) of the proviso to Section 138 NI Act. In this chain of events, therefore, the notice of demand for payment issued by a payee to the drawer in terms of clause (b) of the proviso to Section 138 NI Act is an important trigger. If there is a default in the payee adhering to the time schedules in the sequence of stages outlined, it will be open to the drawer to urge that the court should not take cognizance of the complaint. 17. In the above stages, a significant change has been introduced by the Parliament by Act 55 of 2002 in the form of a proviso to clause (b) of Section 142 NI Act. For a proper understanding of the effect of the proviso, the whole of Section 142 requires to be reproduced: “142. Cognizance of offences. Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974) - (a) no court shall take cognizance of any offence punishable under section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the CRL.M.C. 2072/2006 14 of 28 cheque; (b) such complaint is made within one month of the date on which the cause-of-action arises under clause (c) of the proviso to section 138 : [Provided that the cognizance of a complaint may be taken by the Court after the prescribed period, if the complainant satisfies the Court that he had sufficient cause for not making a complaint within such period.] (c) no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under section 138.]” 18. What in effect the proviso does is to enable the court to take cognizance of a complaint which is presented by a payee beyond the period of “one month” after the expiry of the period of fifteen days within which the drawer is expected to make payment of the money demanded in terms of clause (c) of the proviso to Section 138 NI Act. The requirement is that the complainant must satisfy the court that “he had sufficient cause for not making the complaint within such period.” As will be noticed hereafter, this amendment appears to have been introduced to partly offset the legal consequence of Sadanandan Bhadran where the Supreme Court ruled that there would be an “absolution of the drawer” if the payee fails to make the complaint within one month of the payee failing to make payment after receiving the demand after the first dishonour. In other words, the complaint of a payee who has a valid explanation for not making the complaint within one month of the payeee‟s failure to make payment can still be taken cognizance of. The idea obviously is to extend the possibility CRL.M.C. 2072/2006 15 of 28 of a complaint of a bonafide complainant with a valid explanation for delay in coming to the court being taken on board instead of shutting him out to the benefit of the defaulter. This part will be discussed in detail later in this judgment. Question (a): Which is the proper notice of demand? 19. Although extensive arguments were made on the true effect of the proviso to clause (b) of Section 142, this court is of the view that the answers to questions set out in para 16 in that sequence will really determine whether the aforementioned proviso to clause (b) of Section 142 is attracted in the instant case. Therefore, question (a) is taken up for consideration first. 20. The letter dated 23rd August 2005 has already been extracted above. The penultimate paragraph of the letter which is crucial to the question (a) reads: “You are requested to arrange payment of the above cheque and inform NAFED, so that the cheque