2025 (6) TMI 525 - HC - Indian Laws

Dishonour of Cheque - failure to produce any supporting evidence to establish that such a substantial amount was advanced to the accused - maintainability of criminal proceedings under Section 138 of the NI Act when the accounts between the parties were allegedly settled in civil litigation - Failure to produce any supporting evidence to establish that such a substantial amount was advanced to the accused - HELD THAT - The petitioner-accused cannot contend that merely because the complainant has not produced any supporting evidence at the stage of issuance of process it should be presumed that the cheque in question was not issued towards discharge of any legally enforceable debt or liability. At the stage of issuance of process the presumption under Section 139 of the Negotiable Instruments Act 1881 operates in favour of the complainant. Maintainability of criminal proceedings under Section 138 of the NI Act when the accounts between the parties were allegedly settled in civil litigation - HELD THAT - The gravamen of the argument is that the accused had instituted a civil suit against the complainant wherein a settlement agreement was recorded culminating in a compromise decree thereby indicating that all disputes between the parties had been resolved in the year 2015 and that no amount remained outstanding thereafter. However such contention are forming on disputed question of facts. At the stage of issuance of process and where yet evidence is to be recorded it cannot be decided that whether while drawing compromise decree whole dispute was compromised or no amount remained outstanding. Whether transaction averred in complaint is also covered by said compromise or not. All this disputed questions cannot be adjudicated in exercise of inherent power also extraordinary jurisdiction. This Court is of the opinion that the complaint cannot be non-suited at this preliminary stage particularly at the juncture of issuance of the summoning order. The contentions raised by the learned advocate for the petitioners pertain to disputed questions of fact which are required to be adjudicated during the course of trial. Accordingly since the proceedings are at a nascent stage interference is not warranted. Petition dismissed.

Summary

The core legal questions considered by the Court in this matter are:

1. Whether the complaint filed under Section 138 of the Negotiable Instruments Act, 1881, alleging dishonour of cheque, is maintainable and liable to be proceeded with, or should be quashed at the threshold under the inherent powers of the Court under Section 482 CrPC and Articles 14 and 226 of the Constitution of India.

2. Whether the presumption under Section 139 of the Negotiable Instruments Act operates in favour of the complainant at the stage of issuance of process, and the extent of burden on the accused to rebut such presumption.

3. Whether the existence of a prior civil settlement and consent decree between the parties bars the initiation or continuation of criminal proceedings under Section 138 of the NI Act.

4. Whether the complaint is legally competent, particularly in the absence of a valid board resolution authorizing the filing of the complaint by the complainant company.

5. The scope and limits of the Court's jurisdiction in quashing criminal proceedings at the pre-trial stage, especially in cases involving disputed questions of fact.

Issue-wise Detailed Analysis

1. Maintainability of the Complaint under Section 138 NI Act and Stage of Quashing

The Court examined the complaint which alleged that the complainant had advanced a substantial amount for purchase of plastic granules between January 2012 and April 2013, and that cheques issued by the accused were dishonoured. The complaint complied with the procedural requirements including issuance of statutory notice under Section 138(b) NI Act.

The Court referred to the statutory presumption under Section 139 NI Act, which mandates that once the cheque and signature are admitted or established, it shall be presumed that the cheque was issued for discharge of a legally enforceable debt or liability. This presumption is rebuttable but operates in favour of the complainant at the stage of issuance of process.

Relying on authoritative precedents, including a detailed analysis of the Supreme Court's judgment in Rohitbhai Jivanlal Patel v. State of Gujarat, the Court emphasized that the burden lies on the accused to bring forth cogent evidence to rebut the presumption. Mere denial or absence of documentary proof at the threshold stage is insufficient to quash the complaint.

Further, the Court explained that the offence under Section 138 NI Act is regulatory in nature and the special rules of evidence under Sections 118 and 139 are designed to prevent undue delay in litigation.

Thus, at the stage of issuance of process, the Court is not to conduct a detailed inquiry into the merits or weigh evidence but to ascertain if a prima facie case exists. The complaint in the instant case disclosed such prima facie ingredients.

2. Effect of Prior Civil Settlement and Consent Decree

The petitioner contended that a prior civil suit between the parties had culminated in a Memorandum of Understanding and consent decree in March 2015, recording that all mutual liabilities were settled and inter se transactions reversed, thereby barring criminal proceedings.

The Court observed that this contention raised disputed questions of fact which cannot be adjudicated at the threshold stage under Section 482 CrPC. The scope of quashing is limited and does not extend to resolving factual disputes which require evidence to be led at trial.

Judicial precedents, including Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Ltd, and recent Supreme Court decisions, were cited to underscore that quashing is not warranted merely because a civil dispute exists or a settlement has been recorded. Both civil and criminal proceedings can co-exist, and the criminal court is the appropriate forum to examine the effect of any settlement on the alleged offence.

3. Competency of the Complaint in Absence of Board Resolution

The petitioner argued that the complaint filed by the Director of the complainant company lacked a valid board resolution authorizing the filing of criminal proceedings, rendering the complaint incompetent.

The Court did not delve deeply into this argument at the preliminary stage, noting that such issues also involve disputed questions of fact and procedural compliance that must be examined during trial. The Court reiterated that quashing jurisdiction should be exercised sparingly and only in rare cases where the complaint is manifestly untenable or an abuse of process.

4. Jurisdiction and Principles Governing Quashing of Criminal Proceedings

The Court extensively reviewed the principles governing the exercise of inherent jurisdiction under Section 482 CrPC to quash criminal proceedings. It reiterated that such power must be exercised with great caution, especially at the stage of issuance of process, and not to pre-try the case or evaluate the truthfulness of allegations.

It was emphasized that the Court should avoid entering into disputed factual issues and that a mere suspicion or doubt raised by the accused does not warrant quashing. The Court cited the guidelines laid down in landmark judgments, including State of Haryana v. Bhajan Lal, and recent authoritative rulings clarifying that quashing at the pre-trial stage should be confined to cases where the complaint is frivolous, vexatious, or an abuse of process.

The Court noted that prematurely terminating the criminal process would deprive the complainant of the opportunity to prove the allegations and could unjustly benefit the accused.

Application of Law to Facts and Treatment of Competing Arguments

The Court found that the complaint contained all the necessary ingredients of an offence under Section 138 NI Act, including issuance and dishonour of cheque, statutory notice, and failure to pay. The petitioner failed to produce any unimpeachable documentary evidence or cogent material at this stage to rebut the statutory presumption.

The Court held that the prior civil settlement and consent decree were disputed questions of fact that could not be adjudicated in a quashing petition. The petitioner's reliance on the absence of a board resolution was not sufficient to quash the complaint without trial.

The respondent's submissions that the petition was an abuse of process aimed at stalling the criminal proceedings were accepted. The Court underscored that the presumption under Section 139 NI Act operates at the threshold and the accused must raise a probable defence with evidence to rebut it.

Conclusions on Each Issue

1. The complaint under Section 138 NI Act is maintainable and discloses a prima facie case. The statutory presumption under Section 139 operates in favour of the complainant at the stage of issuance of process.

2. The existence of a prior civil settlement and consent decree does not bar criminal proceedings and raises disputed questions of fact not amenable to quashing at the preliminary stage.

3. The absence of a board resolution authorizing the complaint is a procedural issue requiring trial and cannot be a ground for quashing at the threshold.

4. The Court's inherent jurisdiction to quash criminal proceedings must be exercised sparingly and not to pre-try or resolve factual disputes.

5. The petition seeking quashing of the complaint is devoid of merit and is dismissed.

Significant Holdings and Core Principles Established

"It is required to be presumed that the cheques in question were drawn for consideration and the holder of the cheques i.e., the complainant received the same in discharge of an existing debt. The onus, therefore, shifts on the accused-appellant to establish a probable defence so as to rebut such a presumption."

"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 power of quashing a criminal proceeding should be exercised very sparingly and with circumspection and that too in the rarest of rare cases; that the court will not be justified in embarking upon an enquiry as to the reliability or genuineness or otherwise of the allegations made in the FIR or the complaint."

"When disputed questions of facts are involved which need to be adjudicated after the parties adduce evidence, the complaint under Section 138 of the NI Act ought not to have been quashed by the High Court by taking recourse to Section 482 CrPC."

"The accused in a trial under Section 138 of the Act has two options. He can either show that consideration and debt did not exist or that under the particular circumstances of the case the non-existence of consideration and debt is so probable that a prudent man ought to suppose that no consideration and debt existed."

"Mere denial of the passing of the consideration and existence of debt, apparently would not serve the purpose of the accused. Something which is probable has to be brought on record for getting the burden of proof shifted to the complainant."

"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."