Code of Criminal Procedure, 1973: s.482 – Scope of – Summoning order passed against appellant u/s.138 of NI Act – Petition u/s.438 for quashing summoning order – High Court opined that the grounds agitated by the appellant are “factual defences” which should not be considered within the parameters of limited enquiry permissible in petition u/s.482 – According to the appellant, the concerned post-dated cheques drawn by him in favour of the complainant were contingent/security cheques for buyback of shares of appellant’s company held by the complainant, and therefore the cheques could not have been prematurely presented to the bank and should have been presented for encashment only after transfer of the complainant’s shareholding in the appellant’s company – In other words, as the complainant was still holding the shares of the appellant’s company when the cheques were presented, the complainant is not entitled to receive any payment at that stage, through encashment of the cheques, made available to him – Held: The burden of proving that there is no existing debt or liability, is to be discharged in the trial – 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 s.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 – A careful reading of the complaint and order passed by Magistrate showed 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 proceedings must not become an expedition into the merits of factual dispute, so as to conclusively vindicate either the complainant or the defence.
Code of Criminal Procedure, 1973: s.482 – Quashing of proceedings at preliminary stage – Propriety of – Held: The Court should be slow to grant the relief of quashing a complaint at a pretrial stage, when the factual controversy is in the realm of possibility particularly because of the legal presumption, as in this matter – The factual defence without having to adduce any evidence need to be of an unimpeachable quality, so as to altogether disprove the allegations made in the complaint– 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 – Also because of the legal presumption, when the cheque and the signature are not disputed by the appellant, the balance of convenience at this stage is in favour of the complainant/prosecution, as the accused will have due opportunity to adduce defence evidence during the trial, to rebut the presumption– Situated thus, 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 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.
Dismissing the appeals, the Court
HELD: 1.1 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. The operation of legally transferring shares involves several distinct steps. At first, a contract of sale needs to be entered upon. The nature of transaction in this contract logically then requires payment of the price by the prospective transferee to fulfil their promise first. In exchange, transferor would move to fill Form SH-4 and thus, effectuate a valid instrument. Depending on the nature of the company and its Articles of Association, then upon the presentation of the instrument of transfer to the board of the company and its acceptance by the board, the entry of the transferee in the register of the company in place of the transferor, takes place. Thus, the transfer of share is complete. To say it in another way, 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. [Para 9][996-E-H; 997-A-B]
2. The burden of proving that there is no existing debt or liability, is to be discharged in the trial. The legal presumption of the cheque having been issued in the discharge of liability must also receive due weightage. In a situation where the accused moves Court for quashing even before trial has commenced, the Court’s approach should be careful enough to not to prematurely extinguish the case by disregarding the legal presumption which supports the complaint. At any rate, whenever facts are disputed the truth should be allowed to emerge by weighing the evidence. [Paras 10-12][997-C, E-F; 998-B]
M.M.T.C. Ltd. & Anr. v. Medchl Chemicals and Pharma (P) Ltd. & Anr. (2002) 1 SCC 234 : [2001] 5 Suppl. SCR 265; Rangappa v. Sri Mohan (2010) 11 SCC 441 : [2010] 6 SCR 507; Rajeshbhai Muljibhai Patel v. State of Gujarat (2020) 3 SCC 794 : [2020] 2 SCR 687 – relied on.
3. 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. The Court should be slow to grant the relief of quashing a complaint at a pre-trial stage, when the factual controversy is in the realm of possibility particularly because of the legal presumption, as in this matter. The factual defence without having to adduce any evidence need to be of an unimpeachable quality, so as to altogether disprove the allegations made in the complaint. [Paras 13 and 16] [998-F-G; 999-H; 1000-A-B]
State of Haryana v. Bhajan Lal AIR 1992 SC 604 : [1990] 3 Suppl. SCR 259 – relied on.
4. 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. Also because of the legal presumption, when the cheque and the signature are not disputed by the appellant, the balance of convenience at this stage is in favour of the complainant/prosecution, as the accused will have due opportunity to adduce defence evidence during the trial, to rebut the presumption. Situated thus, 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 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. [Paras 17 and 18][1000-B-E]
HMT Watches Limited v. M.A. Abida & Anr (2015) 11 SCC 776 : [2015] 3 SCR 719; Rajiv Thapar & Ors. v. Madan Lal Kapoor (2013) 3 SCC 330 : [2013] 3
SCR 52 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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