In CRIMINAL APPEAL NOS.694-695 OF 2022-SC- Scuttling of criminal process not merited when proceedings are at nascent stage; Court should be slow to grant relief of quashing complaint at pre-trial stage: SC Justices K.M. Joseph & Hrishikesh Roy [26-04-2022]

Read Judgment: RATHISH BABU UNNIKRISHAN Vs. THE STATE OF NCT OF DELHI & ANR 

LE Correspondent

New Delhi, April 27, 2022: Citing the opinion of Harry Brown, an American author and investment advisor, who aptly said that a fair trial is one in which the rules of evidence are honored, the accused has competent counsel and the judge enforces the proper court room procedure–a trial in which every assumption can be challenged, the Supreme Court has held that Court should be slow to grant the relief of quashing a complaint at a pre-trial stage.

A Division Bench of Justice K.M. Joseph and Justice Hrishikesh Roy asserted that the quashing Court should not take upon itself, the burden of separating the wheat from the chaff where facts are contested and 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 challenge in the present appeals were against the judgment and order dated August 2, 2019 whereby the Delhi High Court dismissed the application under Section 482 of Cr.P.C. seeking quashing of the summoning order dated June 1,2018 and the order framing notice dated November 3, 2018 issued against the appellant under Section 138 of the Negotiable Instruments Act , 1881. 

Brief facts of the case were such that a criminal complaint was instituted by one Satish Gupta. In pursuance of the same the order under Section 251 of the Cr.P.C. was issued against the appellant by the Magistrate’s Court.  The appellant, thereafter, approached the High Court under Section 482 of Cr.P.C. However, the Court after considering the submissions from both the sides observed that the grounds proposed by the appellant were “factual defenses” which should not be considered within the ambit of limited inquiry permissible in a petition instituted under Section 482 Cr.P.C. Resultantly, the petition was dismissed, though the accused’s liberty to defend his case before the competent Court was protected in the impugned order. 

The  Counsel for the appellant contended that without satisfying the essential ingredients for the offence under Section 138 of the N.I. Act to the extent that the dishonored cheque received by the complainant was against “ legally enforceable  debt or liability”   the criminal process cannot be initiated. It was also contended that the cheques issued by the appellant in the favor of the complainant were contingent/ security cheques for buying back the shares of the AAT Academy, the appellant’s company, and therefore the cheques were not to be presented to the bank prematurely for encashment. 

The complainant on the other hand, contended that when a cheque is issued and is duly signed,  then the presumption with respect to a  legally  enforceable  debt will rise in the favor of the cheque holder. Additionally, the Counsel submitted that in cases of share purchase transactions, the customary practice is to first pay the consideration amount and then complete the rest of the formalities. To support the same, the Counsel produced Section 56 (1) of the Companies Act, 2013 relating to transfer of securities. 

The question of law before the Apex Court was whether the trial notice and summons could be quashed on the basis of factual defenses and another question raised was pertaining to the responsibility of the quashing Court of weighing down the evidence produced by the parties, at a pre- trial stage.  

The Top Court observed that in share transactions, time gaps do exist between money out from the buyer and shares reaching to the seller. It was also noted that the burden of proving that there is no existing liability or debt is also to be discharged in the trial. The Bench also relied on the judgment of the Top Court in  M.M.T.C. Ltd. & Anr. vs. Medchl Chemicals and Pharma (P) Ltd. & Anr  wherein it was observed that the  burden of proving that there was no existing debt or liability was on the respondents. Thus, they have to discharge  in the trial. At this stage, merely on the basis of averments in the petitions filed by them the High Court could not have concluded that there was no existing debt or liability.

It was further observed that in a situation where the accused moves Court for quashing the case even before the trial has commenced, the Court shall follow a careful approach and not prematurely extinguish the case by not considering the legal presumption which supports the complaint. Referring to the Companies Act, the Bench said that a bare perusal of Section 56(1) indicates that a transfer of securities of a company can take place only when a proper instrument of transfer is effectuated. It was also stated that 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 Court preferred its judgment in Rangappa vs. Sri Mohan wherein the Bench observed that  the presumption mandated by Section 139 of the Act does indeed include the existence of a legally enforceable debt or liability and this is of course in the nature of a rebuttable presumption. It is open to the accused to raise a defense wherein the existence of a legally enforceable debt or liability can be contested. However, there can be no doubt that there is an initial presumption which favors the complainant. 

On the question of principle of quashing, the Top Court opined that on a careful reading of the complaint and the order passed by the Magistrate what could be construed was that a possible view was taken that cheques drawn were in discharge of a debt for purchase of shares. It was noted that in case of legal presumption, it would not be justified on the part of the quashing Court to carry out a detailed enquiry on the facts alleged, without first granting an opportunity to the Trial Court to assess 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. Meaning  to say that, the quashing proceedings shall not come into the way of determining the merits of the factual dispute, resulting in favoring the case of either the complainant or of the defense, remarked the Bench.

The Top Court further cited its judgment in State of Haryana v. Bhajan Lal wherein it was observed that the power of quashing a criminal proceeding should be exercised very sparingly and with circumspection and that too in the rarest of rare cases.

Thus in the light of observations made above, the Apex Court opined that the High Court should be careful while granting the relief of quashing a complaint under Section 482 Cr.P.C., at a pre-trial stage, especially in circumstances wherein the factual dispute  is within the scope of possibility particularly because of the legal presumption, as in the instant case. 

It was also noted that 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.It was opined that 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, added the Bench.

The Court said, “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 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.”

Dismissing the Appeals, the Bench held that the High Court rightly declined relief to the accused, in the quashing proceeding and 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.