CRL.M.C./2480/2023 of NORTHERN INDIA PAINT COLOUR AND VARNISH CO. LLP Vs SUSHIL CHAUDHARY

*IN THE HIGH COURT OF DELHI AT NEW DELHI%Judgment Reserved on: 3[rd]November, 2023Judgment Delivered on: 10[th]November, 2023

+CRL.M.C. 2480/2023, CRL.M.A. 9435/2023 (stay)

NORTHERN INDIA PAINT COLOURAND VARNISH CO. LLP..... Petitioner

Through:Mr. Kotla Harshavardhan, Ms.MansiSood, Ms. Rishbha Arora andMr. Divyank Yadav, Advocates.Sood, Ms. Rishbha Arora andMr. Divyank Yadav, Advocates.versus

SUSHIL CHAUDHARY..... Respondent

+CRL.M.C. 4141/2023, CRL.M.A. 15544/2023 (stay)

MR. SUSHIL CHAUDHARY..... Petitioner

versus

THRIVING FARM BUILDERS PVT LTD...... Respondent

Through:Mr. Kotla Harshavardhan, Ms. MansiSood, Ms. Rishbha Arora andMr. Divyank Yadav, Advocates.

CORAM:HON'BLE MR. JUSTICE AMIT BANSAL

JUDGMENT

1.Both the present petitions raise similar issues and hence are beingtaken up together for disposal.

Signature Not Verified

Digitally Signed By:DINESHKUMARSigning Date:10.11.2023CRL.M.C. 2480/2023 and connected11:53:41

2.CRL.M.C.2480/2023 has been filed by the petitioner/complainantNorthernIndiaPaintColourandVarnishCo.LLP(hereinafter“Complainant”) impugning the order dated 15[th]February, 2023 passed bythe learned Additional Sessions Judge (ASJ), Tis Hazari Courts, Delhi,whereby the summoning order dated 9[th]January, 2020 passed by theMetropolitan Magistrate (MM), Central, Tis Hazari Courts, Delhi, in acomplaint case under Section 138 of the Negotiable Instruments Act, 1881(NI Act) being CC No. 380/2020 has been set aside and remanded the matterback to the learned MM for fresh consideration. The relevant observationsfrom the impugned order are set out below:

“6.In this case, admittedly, the accused is residing beyondthe territorial jurisdiction of the ld. Trial Court. Therefore, theld. Trial Court, ought to have conducted an inquiry u/s. 202CrPC before arriving at conclusion that there is sufficientground to proceed against the accused. However, in the instantcase, the said inquiry was not conducted. In absence of thesaid mandatory inquiry, the impugned order of summoning ofthepetitionercannotbelegallysustained.Hence,theimpugned order is hereby set aside.7.The present case is remanded back with directions to theLd. Trial Court to conduct the mandatory inquiry u/s.202 CrPCfor ascertaining whether all the ingredients of the offencepunishable u/s.138 NI Act including issuance of the cheque inquestion by the petitioner in discharge of his lawful liability aresatisfied or not. In the said inquiry, the ld. Trial Court shallproperly appreciate the Share Sale and Purchase Agreementdated 27.09.2019 between the parties to ascertain if theamount of the cheque in question has become lawfully dueand payable by the petitioner to the respondent towards thesale price of the shares and whether pre-requisites for thetransfer of the said shares, as contained in the said”the territorial jurisdiction of the ld. Trial Court. Therefore, theld. Trial Court, ought to have conducted an inquiry u/s. 202CrPC before arriving at conclusion that there is sufficientground to proceed against the accused. However, in the instantcase, the said inquiry was not conducted. In absence of thesaid mandatory inquiry, the impugned order of summoning ofthepetitionercannotbelegallysustained.Hence,theimpugned order is hereby set aside.7.The present case is remanded back with directions to theLd. Trial Court to conduct the mandatory inquiry u/s.202 CrPCfor ascertaining whether all the ingredients of the offencepunishable u/s.138 NI Act including issuance of the cheque inquestion by the petitioner in discharge of his lawful liability aresatisfied or not. In the said inquiry, the ld. Trial Court shallproperly appreciate the Share Sale and Purchase Agreementdated 27.09.2019 between the parties to ascertain if theamount of the cheque in question has become lawfully dueand payable by the petitioner to the respondent towards thesale price of the shares and whether pre-requisites for thetransfer of the said shares, as contained in the said”agreement, have been complied by the respective parties.

Signature Not Verified

Digitally Signed By:DINESHKUMARSigning Date:10.11.202311:53:41

3.CRL.M.C.4141/2023 has been filed by the petitioner/accused SushilChaudhary (hereinafter “Accused”), seeking quashing of the order dated 27[th]January, 2020 passed by the learned MM, whereby the Accused has beensummoned in CC No.886/2020 filed by the Complainant under Section 138of the NI Act on the ground that the mandatory inquiry under Section 202 ofthe Code of Criminal Procedure, 1973 (CrPC) has not been conducted by thelearned MM.

4.Both sides have filed brief written note of submissions in support oftheir submissions.

5.Counsel for the Complainant submits that the mandatory inquiry interms of Section 202 of the CrPC was duly conducted by the learned MM inboth the complaint cases. For the purpose of the said inquiry, it is notnecessary for the learned MM to examine witnesses and the said inquiry canbe conducted on the basis of pre summoning evidence and the documents onrecord. Further, it is not mandatory for the learned MM to formally mentionSection 202 of the CrPC in the summoning order, if otherwise it is clear thatthe inquiry under the aforesaid section has been duly conducted. Reliance inthis regard has been placed on Re: Expeditious Trial of Cases UnderSection 138 of NI Act 1881, 2021 SCC OnLine SC 325.

6.It is further submitted that in view of the presumption contained underSection 139 of the NI Act, the learned MM was not required to ascertain theexistence of legally enforceable debt prior to the issuance of summons asthat is matter of trial. In this regard, reliance has been placed on thejudgment of Shiv Kumar v. Ramavtar Agarwal, (2020) 12 SCC 500.

7.Per contra, senior counsel appearing on behalf of the Accusedsubmits that the learned MM has failed to conduct the mandatory inquiry

Signature Not Verified

under Section 202 of the CrPC and the summoning orders have been passedmechanically without ascertaining whether any legally enforceable debtexists or not. In the present case, since the debt arises from the Agreementfor the Sale and Purchase of Shares (hereinafter “Agreement”) dated 1[st]October, 2019, it was incumbent upon the learned MM to refer to therelevant clauses of the said agreement to determine the existence of legallyenforceable debt. In this regard, reliance is placed on the followingjudgments:

i. Pepsi Foods Ltd. v. Judicial Magistrate, (1998) 5 SCC 749,

ii. Dashrathbhai Trikambhai Patel v. Hitesh Mahendrabhai Patel,

(2023) 1 SCC 578.

8.I have heard the counsels for the parties and perused the material onrecord.record.

9.At the outset, reference may be made to Section 202 of the CrPC:

“202. Postponement of issue of process.—(1) Any Magistrate,on receipt of complaint of an offence of which he isauthorised to take cognizance or which has been made over tohim under Section 192, may, if he thinks fit, and shall, in acase where the accused is residing at place beyond the areain which he exercises his jurisdiction, postpone the issue ofprocess against the accused, and either inquire into the casehimself or direct an investigation to be made by policeofficer or by such other person as he thinks fit, for the purposeof deciding whether or not there is sufficient ground forproceeding:on receipt of complaint of an offence of which he isauthorised to take cognizance or which has been made over tohim under Section 192, may, if he thinks fit, and shall, in acase where the accused is residing at place beyond the areain which he exercises his jurisdiction, postpone the issue ofprocess against the accused, and either inquire into the casehimself or direct an investigation to be made by policeofficer or by such other person as he thinks fit, for the purposeof deciding whether or not there is sufficient ground forproceeding:

Provided that no such direction for investigation shall bemade,—made,—

(a) where it appears to the Magistrate that the offencecomplained of is triable exclusively by the Court of Session; orcomplained of is triable exclusively by the Court of Session; or

Signature Not Verified

Digitally Signed By:DINESHKUMARSigning Date:10.11.202311:53:41

(b) where the complaint has not been made by Court, unlessthe complainant and the witnesses present (if any) have beenexamined on oath under Section 200.

(2) In an inquiry under sub-section (1), the Magistrate may,if he thinks fit, take evidence of witnesses on oath:

Provided…”

10.Reference may also be made to Section 145 of the NI Act:

“145. Evidence on affidavit.—

(1) Notwithstanding anything contained in the Code ofCriminal Procedure, 1973 (2 of 1974), the evidence of thecomplainant may be given by him on affidavit and may,subject to all just exceptions be read in evidence in anyenquiry, trial or other proceeding under the said Code.(2) The court may, if it thinks fit, and shall, on the applicationof the prosecution or the accused, summon and examine anyperson giving evidence on affidavit as to the facts containedtherein.”Criminal Procedure, 1973 (2 of 1974), the evidence of thecomplainant may be given by him on affidavit and may,subject to all just exceptions be read in evidence in anyenquiry, trial or other proceeding under the said Code.(2) The court may, if it thinks fit, and shall, on the applicationof the prosecution or the accused, summon and examine anyperson giving evidence on affidavit as to the facts containedtherein.”

11.In Re: Expeditious Trial of Cases under Section 138 of the NI Act1881 (supra), the Supreme Court has laid down guidelines with regard toexpeditious trial in cases of Section 138 of the NI Act. The guidelines inrespect of inquiry under Section 202 of the CrPC read with Section 145 ofthe NI Act, which are relevant for the purposes of the present dispute are setout below:

“11.The learned Amici Curiae referred to judgment of thisCourt in K.S. Joseph v. Philips Carbon Black Ltd.4 where therewas discussion about the requirement of inquiry under Section202 of the Code in relation to complaints filed under Section138 but the question of law was left open. In view of thejudgments of this Court in Vijay Dhanuka (supra), AbhijitPawar (supra) and Birla Corporation (supra), the inquiry tobe held by the Magistrate before issuance of summons to theaccused residing outside the jurisdiction of the court cannotCourt in K.S. Joseph v. Philips Carbon Black Ltd.4 where therewas discussion about the requirement of inquiry under Section202 of the Code in relation to complaints filed under Section138 but the question of law was left open. In view of thejudgments of this Court in Vijay Dhanuka (supra), AbhijitPawar (supra) and Birla Corporation (supra), the inquiry tobe held by the Magistrate before issuance of summons to theaccused residing outside the jurisdiction of the court cannot

Signature Not Verified

be dispensed with. The learned Amici Curiae recommendedthat the Magistrate should come to conclusion after holdingan inquiry that there are sufficient grounds to proceed againstthe accused. We are in agreement with the learned Amici.

Another point that has been brought to our notice relates to theinterpretation of Section 202 (2) which stipulates that theMagistrate shall take evidence of the witness on oath in aninquiry conducted under Section 202 (1) for the purpose ofissuance of process. Section 145 of the Act provides that theevidence of the complainant may be given by him on affidavit,which shall be read in evidence in any inquiry, trial or otherproceeding, notwithstanding anything contained in the Code.Section 145 (2) of the Act enables the court to summon andexamine any person giving evidence on affidavit as to the factscontained therein, on an application of the prosecution or theaccused. It is contended by the learned Amici Curiae thatthough there is no specific provision permitting the examinationof witnesses on affidavit, Section 145 permits the complainantto be examined by way of an affidavit for the purpose of inquiryunder Section 202. He suggested that Section 202 (2) should beread along with Section 145 and in respect of complaints underSection 138, the examination of witnesses also should bepermitted on affidavit. Only in exceptional cases, the Magistratemay examine the witnesses personally. Section 145 of the Act isan exception to Section 202 in respect of examination of thecomplainant by way of an affidavit. There is no specificprovision in relation to examination of the witnesses also onaffidavit in Section 145. It becomes clear that Section 145 hadbeen inserted in the Act, with effect from the year 2003, with thelaudable object of speeding up trials in complaints filed underSection 138. If the evidence of the complainant may be givenby him on affidavit, there is no reason for insisting on theevidence of the witnesses to be taken on oath. On holisticreading of Section 145 along with Section 202, we hold thatSection 202 (2) of the Code is inapplicable to complaintsunder Section 138 in respect of examination of witnesses onoath. The evidence of witnesses on behalf of the complainantshall be permitted on affidavit. If the Magistrate holds an

Signature Not Verified

Digitally Signed By:DINESHKUMARSigning Date:10.11.202311:53:41

inquiry himself, it is not compulsory that he should examinewitnesses. In suitable cases, the Magistrate can examinedocuments for satisfaction as to the sufficiency of grounds forproceedingunderSection202.Fromtheobservationsextracted above, it becomes abundantly clear that in cases of138 NI Act, the evidence of witnesses of the complainant canbe on the basis of affidavit. Further the Magistrate may notinsist on the evidence of the witnesses to be taken on oath. TheSupreme Court also takes note of the fact that the object ofSection 145 NI Act is to speed up the trial in complaints underSection 138 of the NI Act.”

12.In light of the aforesaid guidelines, High Courts were requested toissue practice directions to the Trial Courts, inter alia, on the aspect ofconduct of inquiry under Section 202 of the CrPC. The relevant extracts ofthe Practice Directions issued by this Court on 21[st]June, 2021, insofar asthey pertain to conducting an inquiry under Section 202 of the CrPC are setout below:

“2. On receipt of any such complaint under Section 138 of N.I.Act, wherever it is found that any accused is resident of the areabeyond the territorial jurisdiction of the Magistrate concerned,an inquiry shall be conducted by the Magistrate to arrive atsufficient grounds to proceed against the accused as prescribedunder Section 202 Cr.P.C.Act, wherever it is found that any accused is resident of the areabeyond the territorial jurisdiction of the Magistrate concerned,an inquiry shall be conducted by the Magistrate to arrive atsufficient grounds to proceed against the accused as prescribedunder Section 202 Cr.P.C.

3. While conducting any such inquiry under Section 202Cr.P.C.,theevidenceofwitnessesonbehalfofthecomplainant shall be permitted to be taken on affidavit. Insuitable cases, the Magistrate may restrict the inquiry toexaminationofdocumentsforsatisfactionastothesufficiencyofgroundsforproceedingunderthesaid”Cr.P.C.,theevidenceofwitnessesonbehalfofthecomplainant shall be permitted to be taken on affidavit. Insuitable cases, the Magistrate may restrict the inquiry toexaminationofdocumentsforsatisfactionastothesufficiencyofgroundsforproceedingunderthesaid”provision.

13.Based on the above, it is clear that in cases under Section 138 of theNI Act, the mandatory inquiry as contemplated by Section 202 of the CrPCcan be conducted by taking evidence of the complainant on affidavit. TheNI Act, the mandatory inquiry as contemplated by Section 202 of the CrPCcan be conducted by taking evidence of the complainant on affidavit. The

Signature Not Verified

inquiry need not be necessarily conducted by taking evidence on oath.Further, documents may be examined by the Trial Court for satisfaction asto the sufficiency of grounds for proceeding under Section 202 of the CrPC.

14.In light of the aforesaid legal position, it has to be determined whetherthe learned MM in the present cases has conducted an inquiry under Section202 of the CrPC before issuance of summons to the Accused.

15.At this stage, reference may be made to the summoning orders passedby the learned MM in both the subject complaints. The summoning order inCC No.380/2020 in CRL.M.C. 2480/2023 is set out below:

“Pre-summoningComplainant'sEvidencerecorded.Documents exhibited. Arguments heard on the summoningaspect.

This Court has perused the record of the case file. Theaccused has issued cheque in favour of the complainanttowards discharge of his liability which was returned unpaidas dishonoured vide cheque return memo. Thereafter, thelegal notice of demand was issued by the complainant.However, the accused has failed to pay the cheque amountwithin 15 days of the receipt of the aforesaid legal notice.Hence, the present complaint has been filed.

There is sufficient material available on record tosummontheaccused.Therefore,aprima-faciecasepunishable u/s 138 Negotiable Instruments Act, 1881 is madeoutagainsttheaccused.ThisCourt,therefore,takescognizance of offence u/s 138 Negotiable Instruments Act,1881.Issue summons on the accused on filing of PF&RC/speedpostaswellasthroughallpermissiblemodesfor19.05.2020...”

16.The summoning order in CC No. 886/2020 in CRL.M.C.4141/2023 isset out below:

“Pre-summoning evidence by way of affidavit has been

Signature Not Verified

Digitally Signed By:DINESHKUMARSigning Date:10.11.202311:53:41

tendered along with documents which have been duly exhibited.Vide separate statement, pre-summoning evidence of thecomplainant is closed.

Arguments Heard. Record perused.

I have gone through the complaint, list of dates &events, evidence and the documents placed on record. Thelegal notice was issued within the prescribed period and thecomplaint has also been filed within limitation period as perthe inquiry made u/s 202 CrPC.

In view of the above, I am prima facie satisfied that anoffence under Section 138 of Negotiable Instruments Actagainst the accused has been made out within my jurisdiction.

Let the accused be summoned on filing of PF, only byway of RC-AD/Speed Post/Courier Services as approved by theHon'ble High Court and tracking report be filed on 01.06.2020.PF be filed within reasonable time.”

17.Senior counsel appearing on behalf of the Accused vehementlycontends that the learned MM has not made any reference to the Agreement,in terms of which the legally enforceable debt had allegedly arisen in favourof the complaint. It is submitted that perusal of the said Agreement wouldhave shown that in the present cases, there is no legally enforceable debt thathas accrued in favour of the Complainant.

18.I am unable to accept the aforesaid submission made on behalf of theAccused. Whether the conditions as contemplated in the Agreement for alegally enforceable debt to accrue have arisen or not cannot be determinedsimply by perusal of the Agreement. It is the contention of the Complainantthat the conditions in the Agreement have been satisfied and therefore, thereis legally enforceable debt, whereas the Accused contends that the samehave not been satisfied and there arises no legally enforceable debt.

19.In light of the presumption under Section 139 of the NI Act, cheque

Signature Not Verified

given under Section 138 of the NI Act is presumed to be in discharge of alegally enforceable debt or other liability. The aforesaid presumption isrebuttable and the accused can rebut this presumption by leading evidence inthis regard. Therefore, the contention of the Accused that legallyenforceable debt has not accrued in favour of the Complainant on account ofnon-fulfilment of the conditions in the Agreement would have to be provedby leading evidence at the time of trial. The learned MM is not required togo into this evidence while conducting an inquiry under Section 202 of theCrPC.

20.At the stage of issuance of summons, for the purpose of Section 202of the CrPC read with section 145 of the NI Act, the learned MM is onlyrequired to examine whether the basic ingredients of an offence underSection 138 of the NI Act have been prima facie made out by thecomplainant and supported by the pre-summoning evidence led on behalf ofthe complainant.

21.In both the present cases, the complaints disclose debt. The learnedMM on the basis of the complaints and the pre-summoning evidence led onbehalf of the Complainant has observed that; cheque was issued by theAccused to the Complainant; and the aforesaid cheque was dishonoured.Further, upon dishonour, statutory notice under Section 138 of the NI Acthad been duly issued by the Complainant to the Accused and the Accusedfailed to make the payment within fifteen days of the receipt of the notice. Inmy considered view, both the summoning orders issued by the learned MMin the present cases satisfy the requirements of Section 202 of the CrPC readwith Section 145 of the NI Act.

22.In this regard, reference may be made to the judgment of the Supreme

Signature Not Verified

Digitally Signed By:DINESHKUMARSigning Date:10.11.202311:53:41

Court in Shiv Kumar (supra), where similar submission raised on behalf ofthe accused persons was negated by the Supreme Court. The relevantobservations are set out below:

“4.MrMaheshJethmalani,learnedSeniorCounselappearingfortheappellantcontendsthattheJudicialMagistrate First Class could have examined the materials filedalong with the complaint and from the materials which werebrought on the record it was clear that there was no legallyenforceabledebt,hencetherewasnocasefortakingcognizanceoftheoffenceandregisteringthecriminalcomplaint. He referred to the agreement dated 21-10-2014Annexure P-2 between the parties. The learned counsel for theappellant has also referred to the judgment of the High Courtand specifically paras 23 and 32. The High Court in paras 23and 32, which has been relied and referred to by the counsel fortheappellant,observed:(ShivKumarcase [ShivKumar v. Ramavtar Agrawal, 2016 SCC OnLine Chh 2121] ,SCC OnLine Chh)

“23.The presumption available under Section139 of the NI Act has to be rebutted and thatrebuttal can only be done after adducing evidence.This, by itself clearly reflects that the rebuttalpresumption cannot be looked into at the stage of theCourttakingcognizanceoftheoffenceandregistering the case: all that Court would have to seeis whether there is prima facie case made outmeeting the conditions precedent as envisaged underSection 138 of the NI Act, which in the instant case, inthe opinion of this Court, the respondent has in factbeen able to establish and fulfil all such ingredients.xxxxxxxxx

“32.Ashasbeenstatedintheprecedingparagraphs since there is presumption to be drawnof there being debt or liability in part or in wholeof the drawer to the holder of the instrument, thecourt below cannot be said to have faulted upon intaking cognizance and in registering the offence.

Signature Not Verified

Digitally Signed By:DINESHKUMARSigning Date:10.11.202311:53:41

Since it is rebuttable presumption and all thecontentions and averments made by the counsel forthe petitioner being his defence, it would be open forhim to raise all these grounds at the stage of leadingevidence including the defence of existence of legallyenforceable debt or liability. However, there can beno doubt that at the time of filing of complaint therewas always initial presumption which would be infavour of the complainant.”

We are in full agreement with the opinion of the High Courtexpressed in the above noted paragraphs which has beenreferred by the learned counsel for the appellant. It is wellsettled that the rebuttal can be made with reference to the”evidence of the prosecution as well as of defence.

23.The aforesaid observations of the Supreme Court are fully applicablein the present case.

24.Further, it cannot be accepted that just because the summoning orderof the MM does not make specific reference to Section 202 of the CrPC, thatan inquiry as contemplated in the aforesaid provision has not beenconducted by the learned MM.

25.In view of the discussion above, I am of the considered view that inboth the complaint cases, the learned MM has duly conducted the necessaryinquiry under Section 202 of the CrPC before issuance of summons to theAccused.

26.If the contention of the Accused is accepted that the MM has toconduct an inquiry by appreciating the terms and conditions of theAgreement entered into between the parties to ascertain if legallyenforceable debt has arisen, it would result in full trial being conductedeven before the issuance of summons. Clearly, such an exercise would be inteeth of the directions passed by the Supreme Court in Re: Expeditious

Signature Not Verified

Digitally Signed By:DINESHKUMARSigning Date:10.11.202311:53:41

Trial of Cases Under Section 138 of NI Act 1881 (supra).

27.Reliance placed on behalf of the Accused onDashrathbhaiTrikambhai Patel (supra) is misplaced as the aforesaid judgment was not inthe context of Section 202 of the CrPC but upon the ingredients to besatisfied for an offence under Section 138 of the NI Act to be made outduring full-fledged trial. Further, reliance placed on Pepsi Foods Ltd.(supra) is also of not much help to the Accused, as this Court is of theopinion that the learned MM has applied his judicial mind while issuingsummons in the present cases.

28.Accordingly, CRL.M.C.2480/2023 is allowed and the order dated 15[th]February, 2023 passed by the learned ASJ is set aside and the order dated 9[th]January, 2020 passed by the learned MM is upheld. CRL.M.C.4141/2023stands dismissed and the order dated 27[th]January, 2020 passed by thelearned MM is upheld.

29.The present petitions, along with the pending applications, standdisposed of.

NOVEMBER 10, 2023

AMIT BANSAL, J.

Signature Not Verified

Digitally Signed By:DINESHKUMARSigning Date:10.11.202311:53:41