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A Win for Companies: Supreme Court Clarifies Stamp Duty Rules for Increased Share Capital.

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State of Maharashtra & Anr. v. National Organic Chemical Industries Ltd.
Case No.: Civil Appeal No. 8821 of 2011.
Date: April 05, 2024.
Court: Supreme Court of India.
Quorum: Hon’ble J. Sudhanshu Dhulia, J. Prasanna B. Varale.

Facts of the case:
National Organic Chemical Industries Ltd. (NOCIL) was originally incorporated with a share capital of Rs.36 crores. In 1992, it increased its share capital to Rs.600 crores and paid stamp duty of Rs.1,12,80,000 as per the Bombay Stamp Act, 1958. Subsequently, the Maharashtra government amended the Stamp Act in 1994, introducing a maximum cap of Rs.25 lakhs on stamp duty payable on the Articles of Association of a company. In 1997, NOCIL further increased its share capital to Rs.1,200 crores and paid Rs.25 lakhs as stamp duty, considering it the maximum cap. However, NOCIL soon realised that since the maximum of Rs. 25 lakhs had already been paid in 1992, no further stamp duty was payable. NOCIL sought a refund, which was rejected by the stamp authorities.

Legal issues:
1. Whether filing Form No.5 for increasing share capital under the Companies Act amounts to an ‘instrument’ requiring stamp duty under the Stamp Act?
2. Whether an increase in share capital materially alters the character of the Articles of Association, requiring fresh stamp duty?
3. Whether the maximum cap of Rs.25 lakhs on stamp duty is applicable each time the share capital is increased or a onetime measure?

Legal provisions:
1. Bombay Stamp Act, 1958
• Section 2(1) which defines the word ‘instrument.’
• Article 10 of Schedule I of the Act which discusses about Stamp duty on Articles of Association.

2. Companies Act, 1956
• Section 31 which discusses about the alteration of articles of association.
• Section 97 discusses about the notice for increase in share capital (Form No.5).

Contentions of petitioners:
The learned counsel for the petitioners argued that the notice filed in Form No.5 under Section 97 of the Companies Act for increasing a company’s share capital amounts to an ‘instrument’ as defined under Section 2(1) of the Bombay Stamp Act, 1958. They contended that Form No.5 records or purports to record the increase in share capital, which essentially extends the right of the company to have a higher capital as mentioned in its Articles of Association. Thus, it creates or transfers a right related to the share capital and falls within the definition of an ‘instrument’ under Section 2(1) of the Bombay Stamp Act, 1958.
The petitioners relied on the Supreme Court’s judgement in Hindustan Lever v. State of Maharashtra to argue that Form No.5, like a court order sanctioning an amalgamation scheme, is an instrument that affects the transfer of rights/liabilities. The petitioners submitted that when a company increases its share capital from Rs.600 crores to Rs.1,200 crores, it substantially alters the character of its Articles of Association which originally specified a lower share capital. They argued tat under Section 14A of the Stamp Act, any material alteration to an instrument requires fresh stamp duty according to the altered character of the instrument. Therefore, NOCIL should pay fresh stamp duty on the increased Rs.1,200 crore capital.
The appellants pointed out that the maximum cap of Rs.25 lakhs on stamp duty was introduced in 1994, after NOCIL had already paid Rs.1.12 crores in stamp duty in 1992 on its earlier capital increase. They contended that since this cap was not in existence in 1992, the payment cannot be considered towards this cap. They further asserted that the Rs.25 lakh limit applies individually to each instance of capital increase not cumulatively over the life of the Articles. Therefore, NOCIL was obligated to pay the maximum Rs.25 lakh stamp duty when it increased capital to Rs.1,200 crores.

Contentions of the respondent:
The learned counsel for the respondent argued that Form No.5 merely serves the limited purpose of giving statutory notice to the Registrar about the increase in capital already approved by the company via a resolution. It does not, by itself, create, transfer or extinguish any rights or liabilities. The respondents distinguished the Supreme Court’s judgement in Hindustan Lever, stating that a court order sanctioning an amalgamation scheme is very different from a mere statutory notice like Form No.5, on which the Registrar exercise no discretion.
The respondents relied on Section 31(2) of the Companies Act, which states that any alteration made to the Articles of Association shall be valid as if originally contained therein. They argued that an increase in share capital is merely an alteration to the Articles, which does not substantially change the character of the Articles so as to attract Section 14A of the Stamp Act. The respondents cited the Allahabad High Court judgement in New Egerton Woollen Mills to strengthen their argument that there is no concept of a company having ‘new’ Articles upon an increase in capital.
The respondents contented that the maximum cap of Rs. 25 lakhs introduced in 1994 applies to the entire Articles of Association, including any increases in share capital mentioned. Since NOCIL had already paid over Rs.25 lakhs in 19922 on the original Articles, they argue that no further stamp duty could be levied when the capital was increased later, as the cap had been exhausted on the same instrument. The respondents cited several Supreme Court judgements to argue that charging provisions under fiscal statutes like the Stamp Act must be construed strictly. Any ambiguity in language must be resolved in favour of the assessed and against the revenue authorities. They pointed out that Article 10 of Schedule I covers “Articles of Association…where the company has…increased share capital” under the same entry in Column 1. This indicates the cap in Column 2 applies to the entire Articles including increased capital, not separately on each increase. (For the column, refer the judgement attached below).

Analysis of the judgement:
The Supreme Court observed that Form No.5 is only a statutory notice informing the Registrar about the increase in capital already approved by the company. The Registrar merely records this increase and does not exercise any discretion, as long as the form is properly filled. The court stated that the Articles of Association is the only ‘instrument’ under the Stamp Act in this context. The Court agreed with the respondents that an increase in share capital does not substantially alter the character of the Article so as to attract fresh stamp duty under Section14A of the Stamp Act. The increase is validated retrospectivity without the concept of ‘new’ Articles coming into existence.
The Apex Court held that the cap is applicable on the entire Articles of Association, including any increased share capital therein, and not separately on each increase. The Court rejected the appellant’s argument that since the Rs. 25 lakh cap was introduced in 1994, after NOCIL’s 1992 payment of Rs.1.12 crores, the latter payment cannot be considered.
The Supreme Court’s analysis followed established principles of interpreting fiscal statutes and harmoniously reading the Stamp Act with the Companies Act. On the issue of Form No.5 being an instrument, the Court correctly distinguished it from court orders altering rights/liabilities, which was the context in the Hindustan Lever case relied upon by the appellants. Regarding increase in capital altering the Articles, the Court rightly gave precedence to Section 31(2) of the Companies Act, which is the special law governing companies. This validating provision indicated that an increase is not a material alteration requiring fresh stamping under the general Stamp Act.
The most significant part of the analysis is on the applicability of the Rs.25 lakh cap. By examining the language of Article 10 vis-a-vis the 2015 amendment, the Court logically concluded that the cap applied to the Articles in totality at any given point, rather than repeatedly on each increase. The Court’s refusal to apply the cap prospectively from 1994 while ignoring NOCIL’s past payment was also a pragmatic view, preventing excessive taxation on the same instrument.

Conclusion
Overall, the Court’s approach of strictly interpreting the charging provisions while harmonizing the two laws binding with established jurisprudence on fiscal statutes. It has provided welcome clarity on a vexed issue faced by companies. This judgement provides much-needed clarity on stamp duty on increased share capital. Companies can breathe easy, knowing the one-time cap applies, avoiding repetitive taxation.

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Judgement reviewed by Maria Therese Syriac.

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Equity Triumphs Over Technicality: Supreme Court Upholds Stamp Duty Refund for Fraud Victim

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Bano Saiyed Parwaz v. Chief Controlling Revenue Authority & Ors.

Case No.: 4111 of 2020 (Civil Appeal).

Dated on: 17th May 2024.

Court: Supreme Court of India.

Quorum: Hon’ble J. B.R. Gavai, J. Prashant Kumar Mishra.

 

Facts of the case:

The appellant, Bano Saiyed Parwaz, agreed to purchase a property in Mumbai from Mohammed Hanif Ahmed Fitwala. A conveyance deed was prepared for the same purpose, and the appellant paid a stamp duty of Rs. 25,24,350 in May 2014. The conveyance deed was not registered as the vendor had already sold the property to a third party in 1992. The appellant tried to contact the vendor upon discovering the fraud to execute a cancellation deed, but the vendor was unavailable. This forced the appellant to lodge a police complaint. It was only after the intervention of the police that the vendor could be traced, and a cancellation deed was executed in November 2014.

In October 2014, the appellant had already applied online for a refund of the stamp duty under Section 48 of the Maharashtra Stamp Act, 1958. Subsequently, in December 2014, she filed a written application along with relevant documents, seeking a refund under Section 47 of the Act. The appellant’s demand for a refund was rejected by respondents in June 2015 and February 2016 on the ground that the application was filed beyond the limitation period prescribed under Section 48 of the Act. Aggrieved by these orders, the appellant approached the High Court of Judicature at Mumbai (Bombay) through a writ petition (No. 281 of 2019). However, the High Court dismissed the petition in August 2019, upholding the orders of the revenue authorities.

Legal issues:

Whether the appellant’s application for a refund of stamp duty was maintainable despite the cancellation deed being executed in November 2014, which was beyond the six-month limitation period prescribed under Section 48 of the Maharashtra Stamp Act, 1958?

Legal provisions:

  1. Maharashtra Stamp Act, 1958:
  • Section 47(c) allows for the refund of stamp duty in certain circumstances, including where an instrument executed by any party to it was found to be absolutely void from the beginning [Section 47(c) (1)] or where the instrument totally failed of its intended purpose due to the refusal of any person to act under the same [Section 47(c)(5)].
  • Section 48 of the Act states that the application for a refund under Section 47 must be made within six months of the date of the instrument.

  1. Bombay Stamp Rules, 1939
  • Rules 21 and 22A provide for the procedure to be followed by the Collector in inquiring into and deciding claims for refunds, including the power to require oral depositions, affidavits, or witnesses’ evidence.

Contentions of petitioner

The learned counsel for the appellants contended that the case was squarely covered under Sections 47(c)(1) and 47(c)(5) of the Act, as the conveyance deed was found to be void from the beginning due to the fraud played by the vendor, and it totally failed of its intended purpose. The counsel further argued that Sections 47 and 48 of the Act contain two distinct stages for a refund of stamp duty:

  • Making an application for a refund within six months, as required by Section 48.
  • Holding an inquiry and leading evidence as per the Rules to satisfy the Collector that the case is under one of the circumstances in Section 47.

The appellant’s application, filed on October 1014, was within the time limit prescribed by Section 48, and the subsequent cancellation deed should not have rendered the application time-barred. The appellant also contended that the authorities misinterpreted Sections 47 and 48, ignoring that the circumstances of the fraud warranted a refund.

Therefore, the case falls within the provisions, and hence, the appellant is entitled to a refund.

Contentions of respondents

The learned counsel for respondents opposed the present appeal, arguing that although the appellant filed an application for a refund of stamp duty in October 2014, the cancellation deed between the appellant and the seller was executed in November 2014. This date falls beyond the six-month limitation period from the date the stamp duty was paid, which was May 2014, as prescribed by Section 48 of the Act. Consequently, the last date for applying for the refund was November 2014, making the appellant’s application beyond the period of limitation.

Analysis of the Judgement:

The Supreme Court observed that the appellant was a bona fide purchaser and was a victim of fraud played upon her by the vendor. She had paid a substantial amount of Rs. 25,34,400 to purchase the stamp duty but could not register the conveyance deed due to the vendor’s fraud. The appellant had applied online for a refund after learning about the fraud, and her efforts to contact the vendor to execute the cancellation deed were delayed due to his unavailability, leading to the police complaint. The High Court’s finding that the appellant’s application was not maintainable because it was filed before the cancellation deed was executed was misplaced in so far as while submitting the online application; there was no caution to the appellant that all of the documents and materials for the satisfaction of the Collector should be filed with the application. The Court observed that the Sections concerned envisaged only the application for relief under Section 47 to be made within six months of the instrument’s date, which the appellant had prima facie complied with. The evidence required and the inquiry to be made in terms of Section 47 of the Act is a separate process altogether. The appellant was not required to file all documents and materials for the satisfaction of the Collector along with the initial application.

The Court relied on its earlier judgment in ‘Committee-GFIL v. Libra Buildtech Private Limited & Ors., where it had held that when the state deals with a citizen, it should not ordinarily rely on technicalities, and if the citizen’s case is just, the state must act as an honest person, even if legal defences are available. The Court further reiterated the settled principle that the expiry of a limitation period may bar the remedy but not the right of a citizen. Therefore, notwithstanding the dismissal of the initial application on the ground of limitation, the appellant was entitled to claim the refund of stamp duty based on the grounds mentioned in Sectio 47 of the Act.

Accordingly, the Supreme Court allowed the appeal and set aside the High Court’s order and the orders of the revenue authorities. The Apex Court directed the state to refund the stamp duty amount of Rs. 25,34,400 to the appellant.

Conclusion

The judgment of the Supreme Court in the case of Bano Saiyed Parwaz v. Chief Controlling Revenue Authority is a decision that upholds the principles of equity, justice, and fairness. The Court’s emphasis on the state’s responsibility to act as an honest and responsible entity when dealing with its citizens is a notable step towards promoting accountability and responsiveness of the government. It encourages the courts and authorities to adopt a citizen-friendly approach when dealing with similar situations.

 

Judgement reviewed by Maria Therese Syriac.

Click here to read the full judgement

 

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If substance of complaint fulfills section 141 of NI Act,the complainant can proceed in accordance with law: Delhi High court

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CASE TITTLE: SHIKHA SHAH V RENU PROMOTERS PVT LTD

CASE NO: CRL.M.C. 456/2022 & CRL.M.A. 2059/2022

ORDER ON: 29.02.2024

QUORUM: . JUSTICE NAVIN CHAWLA

FACTS OF THE CASE:

The Petition filed by the petitioner herein challenges the order dated 03.12.2019 passed by the learned Metropolitan Magistrate, in the complaint filed by the respondent herein under Section 138 of the Negotiable Instruments Act, 1881

The facts leading to the present petition in question is that, The above complaint has been filed by the respondent alleging that the accused no.1 therein, that is, Govind Radhe Real Estate Private Ltd. approached the Director of the respondent company through the accused no.2 therein, Narsingh Shah, who is the husband of the petitioner, seeking financial assistance. It was further alleged that the accused no.1, through the accused no.2, had a business relationship with the Director of the respondent company. Further, the accused no.2 and the petitioner herein, who has been arrayed in the Complaint as the accused no.3, were tenants of the respondent’s sister company- M/s BDR Developers Pvt. Ltd., due to which, the respondent advanced a loan of Rs.1,85,00,000/- to the accused no.1. It was the understanding between the parties that the loan advanced by the respondent shall be repaid on or before 20.09.2019 along with interest @24% per annum. It is further alleged that in the month of February, 2019 the accused no.2 in the said complaint, approached the respondent and expressed his difficulty in paying the monthly interest/ installments of the loan. It is alleged that the accused no.1 with the consent of the petitioner herein and the accused no.2, who both are the Directors of the accused no.1, under the signatures of the accused no.2, handed over a cheque for a sum of Rs.2,35,00,000/- to the respondent with specific understanding that the respondent shall be at liberty to encash the said cheque and the same shall be honoured on presentation. It is alleged that relying upon the assurance, the cheque was duly presented by the respondent, however, the same was returned dishonoured with the remark ‘Account Blocked’. It is alleged that the respondent sent a legal notice dated to the accused, including the petitioner, however, no reply was received thereto within the stipulated period. Based on the above averments, the subject complaint was filed before the learned Trial Court. After hearing the arguments and considering the pre-summoning evidence, the learned Trial Court summoned the accused, including the petitioner vide order dated 03.12.2019. Aggrieved of the said order, the petitioner challenged the same by way of a revision petition before the learned PD&SJ, which came to be dismissed by the Order impugned herein.hence this petition.

LEGAL PROVISIONS:

Section 138 of the Negotiable Instruments Act, 1881 lays down that,  returning of a cheque unpaid constitutes an offence only if such return is due to want of funds.

Section 141 of the Negotiable Instruments Act, 1881, talks about the offence by company

Section 482 of the Cr.P.C., talks about the inherent powers of High Court.

CONTENTIONS OF PETITIONER:

The petitioner through their counsel rellied on the judgment of the Supreme Court in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla & Anr and submitted that the complaint lacks the basic and essential averments and, in the absence thereof, the petitioner cannot be summoned in the said complaint. The counsel further submits that  there is no averment made in the complaint that the petitioner was in-charge of or was responsible to the accused no.1 company for the conduct of the business of the said company. further counsel comtented that mere averment that the cheque was issued with the consent of the petitioner, would not be sufficient to charge the petitioner of the offence under Section 138 read with Section 141 of the NI Act.

CONTENTIONS OF THE RESPONDENT:

The Respondent through their counsel rellied on the judgment of the Supreme Court in S.P.Mani & Mohan Dairy v. Dr.Snehalatha Elangovan and further submitted that Section 141 of the NI Act is in two parts, while the Sub-section (1) of Section 141 of the NI Act makes a person, who is in-charge of or was responsible to the company for its conduct, liable for the acts of the company,the counsel further contents that, Subsection (2) of Section 141 of the NI Act makes an official of a company including, inter alia, a Director on whose consent, connivance or neglect the offence is committed by the company, liable to be proceeded against.the counsel further submits tha, in the present case, the respondent has not only pleaded that the petitioner being a Director of the accused no.1 company was in-charge of and in control of the affairs of the accused no.1 company, but has also pleaded that the cheque which has been dishonoured was issued with the consent of the petitioner.counsel further submitted that, the summoning order has rightly been passed by the learned Trial Court.counsel also further submits that to the legal notice, a joint reply was given by the accused, including the petitioner herein. He submits that in the said reply also, there is no denial by the petitioner to the fact that the cheque was issued with her consent

COURTS ANALYSIS AND JUDGEMENT:

The court on having considered the submissions made by the learned counsels for the parties, having pursued the meterials on record, refereed to various judicial decisions and interpreted the legal provisions, court further observed that it is apparent that the power under Section 482 of the Cr.P.C. to quash a complaint has to be exercised very sparingly and where, read as a whole, the complaint does not lay the foundation for the offence,the court further opined that, if the substance of the allegations made in the complaint fulfill the requirement of Section 141 of the NI Act, the complaint has to proceed in accordance with law, The court further opined that,It is not necessary to reproduce the language of Section 141 of NI Act verbatim in the complaint, and the complaint is required to be read as a whole. Thev court further interpreted, Section 141 of the NI Act is in two parts. While Sub-section (1) of Section 141 of the NI Act extends the liability to be prosecuted to every person who, at the time the offence was committed, was incharge of and was responsible to the company for the conduct of its business, irrespective of whether such person is a Director, Manager, Secretary or other Officer of the Company, Sub-section (2) of Section 141 of the NI Act makes any person with whose consent or connivance or due to whose neglect as a Director, Manager, Secretary, or other Officer of the company, the offence has been committed by the Company, vicariously liable. The burden of proving the consent, connivance or neglect on behalf of the Director or other Officer of the company would rest upon the complainant. Therefore the court further opined that, In the present case, both the above factors are equally present. The respondent in its legal notice and also in the complaint, has made specific averments that the cheque in question was issued with the consent of the petitioner, who is a Director of the accused no.1 company. Though the complaint was filed with an averment that the reply to the legal notice had not been received, the respondent has now placed on record the copy of the reply dated 20.11.2019, which was received after the statutory period by the respondent from the accused including the petitioner herein. The court furthercontented that the  same does not deny the above averment of the respondent that the cheque in question was issued with the consent the petitioner herein. Applying the principles laid down by the Supreme Court in S.P.Mani & Mohan Dairy (supra), therefore, the court further is of the view that, no fault can be found in the Impugned Order.the couirt further observed that in exercising its power under Section 482 Cr.P.C., does not act as a Court of appeal. The court further opined that, Its jurisdiction is confined to see that there is no miscarriage of justice.the court further opined that It cannot enter into a detailed examination of the evidence. However the court is of the view that, It is equally important to remind oneself of the limited scrutiny required at the stage of summoning the accused. The Court was not expected to minutely scrutinise the averments made in the Complaint as if they were statute. The Complaint has to be read as a whole and in reasonable manner, keeping in mind also the object of Section 138 of the NI Act. Applying the above principles as well, the court on finding  no merit in the present petition, accordingly, dismissed. Off the same

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Grant of recovery rights as against the registered owner of the offending vehicle, cannot be sustained in law:Delhi High Court

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CASE TITTLE: SANDEEP YADAV. versus NEW INDIA ASSURANCE CO. LTD.

CASE NO: MAC.APP. 39/2022& CM APPL. 7486/2022

ORDER ON: 20 May 2024

QUORUM: . JUSTICE DHARMESH SHARMA

FACTS OF THE CASE:

The present appeal filed by the appellant, who is the registered owner of the vehicle, under Section 173 of the Motor Vehicles Act, 1988 assailing the impugned judgment-cum award dated passed by the learned Presiding Officer, Motor Accident Claims Tribunal, New Delhi whereby the learned Tribunal granted recovery rights to the respondent/Insurance Company to recover the awarded amount from the insured-owner.

The facts leading to the appeal in question is that, on 07.11.2013, about 10:00 PM, the deceased-Brajanand @ Birjoo was going by his bicycle and when he reached near Mayawati Bus Stand, Baghpat, U.P., suddenly a truck driven in a rash and negligent manner by Rajesh Kumar/respondent No.1, came at a high speed and hit the bicycle of the deceased. Consequently, the deceased sustained fatal injuries and was taken to the District hospital, but was declared brought dead. Subsequently, FIR was lodged against the respondent No.1/driver4 with Police Station Baraut under Sections 279/304A/427 of the IPC The respondents No.1 and 2, who are the driver and registered owner of the offending vehicle, were served but failed to contest the case and were proceeded ex-parte, Further, on appreciation of the evidence led on the record, the claim petition was allowed and the claimants/legal heirs of the deceased were granted a total compensation of Rs. 16,14,000/- with interest @ 9% per annum from the date of filing of the petition till realization The impugned judgment-cum-award has been assailed inter alia on the grounds that the onus is upon the insurance company to satisfy the court that there has been a violation of the insurance policy. Further, the respondent No.3/insurance company failed to prove that the licence was fake and also the fact that it was not issued by the concerned authority.

LEGAL PROVISIONS:

Section 173 of the Motor Vehicles Act, 1988 talks about appeals

CONTENTIONS OF APPELLEANT:

Learned counsel for the appellant/registered owner, challenging the grant of recovery rights to the insurance company, alludes to the aspect that once the driver has produced a licence, which appears to be genuine on the face of it, then the owner is not liable and, in this regard, reliance was placed upon the judicial precidents, Per contra, learned counsel for the respondent/Insurance Company, relying upon contested that the appellant/owner was aware of the fake licence possessed by the driver and still permitted him to drive the vehicle. Further, the registered owner never disputed the fact before the learned Tribunal that the driving licence was fake.

CONTENTIONS OF THE RESPONDENT:

The respondent/Insurance Company through their counsel denied all the allegations challenging the territorial jurisdiction of the Court as also the fact that the driver was not possessing a Driving Licence to drive the vehicle. Further the counsel also contested that the offending vehicle did not have a valid permit and other relevant documents and thus, the insurance company is not liable to pay any amount.

COURTS ANALYSIS AND JUDGEMENT:

Having heard the learned counsels for the parties, the court observed that the decision by the learned Tribunal qua the grant of recovery rights as against the present appellant/registered owner of the offending vehicle, cannot be sustained in law. It would be apposite to refer to the observations made by the learned Tribunal while granting the recovery rights to the Insurance Company, The court further observed that the plea taken by the learned counsel for the appellant that he did whatever was in his control and he had produced the driving license but was unable to produce the driver as he had no control over him, cannot be brushed aside. the court further opined that There is no evidence led by the respondent/insurance company that the appellant, being the registered owner, was aware that the driving license of the respondent No.1/driver was forged and fabricated. Further, there is no evidence on the record with respect to the fact that the appellant/owner, despite knowing that such driving license was fake and fabricated, allowed the respondent No.1/driver to drive the offending vehicle. The court further observed that respondent/insurance company was duty bound to lead evidence on the aspect that the appellant was aware that such driving license was fake and yet, he chose to handover the control of the offending vehicle to his driver. In all probabilities, the appellant bonafidely believed the driving license to be genuine.The court further observed that, It is well settled that the registered owner is not supposed to rush to the respective RTO and ascertain the genuineness of the driving license produced by the driver. The driver had probably been driving the offending vehicle for a long time to the satisfaction of the appellant/owner. The court further observed that the insurance company could have also summoned and examined the registered owner to prove its defence, which it did not do. In this regard, reliance was placed on judicial decisions, therefore, the court further In view of the foregoing discussion, the court allowed the present appeal and the impugned judgment-cum-award passed by the learned Tribunal qua the grant of recovery rights to the respondent/insurance company against the appellant/registered owner and hereby set aside the present petition. However, the respondent/insurance company shall be at liberty to proceed for recovery of the amount of compensation paid to the claimants/legal heirs of the deceased from the driver of the offending vehicle in accordance with law.The court further disposed off the  present appeal, along with the pending application.

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Delhi High Court Rullings:‘other liability’ encompasses all distinct forms of liabilities but not limited to the liability undertaken as a guarantor.

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CASE TITTLE: MRS SANTOSH RANI DHARIWAL V STATE (GOVT. OF NCT OF DELHI) AND ANR

CASE NO: CRL.M.C. 6017/2023 & CRL.M.A. 22555/2023

ORDER ON: 28.03.2024

QUORUM: . JUSTICE MANOJ KUMAR OHRI

FACTS OF THE CASE:

The present petition is filed under Section 482 Cr.P.C.wherein, the petitioner seeks setting aside of the summoning order passed by learned Court, Delhi,

The facts leading the present appeal in question is that respondent No.2/complainant is an NBFC duly incorporated under the Companies Act, 1956 and also registered with RBI, and is engaged in the business of loan and finance. It is alleged that husband of the petitioner namely Mr. Sandeep  Singh Deswal approached the complainant and requested a loan of Rs.1 crore for his business purposes. A loan agreement was executed between the petitioner’s husband and the complainant. The loan document was accompanied by a Term Sheet, which was signed not only by Mr. Sandeep Singh Deswal but also by the petitioner. The petitioner also executed a surety bond , vide which she undertook to pay the loan amount with interest, costs and expenses to the complainant, in case the loan is not paid by Mr. Sandeep Singh Deswal. The petitioner had also given the original papers i.e. allotment letter, buyer and seller agreement and receipt in respect of her office bearing No.207, 2nd Floor, Palm Square, Gurgaon, Haryana as collateral security. Upon default in repayment of loan by petitioner’s husband, petitioner’s husband issued a cheque bearing No.000013  drawn on HDFC Bank, for an amount of Rs.60 lacs towards part-payment of the dues. When the said cheque was presented for encashment, the same was returned dishonoured with the remark ‘funds insufficient’ A legal demand notice was issued to petitioner’s husband and upon his failure to repay the cheque amount, respondent No.2 filed a case under Section 138 NI Act against Mr. Sandeep Singh Deswal vide CC No.3667/2018. In the meantime, the petitioner had taken back all the original documents in respect of the property that were given as collateral surety/mortgage, on the pretext of getting the property registered and also executed a receipt acknowledging receipt of the said documents. The petitioner had also handed over a separate cheque bearing number 000001 drawn on HDFC Bank, Vatika Atrium, A-Block Golf Course Road, Sector-53, Gurgaon-122002 for  Rs.25 lacs towards part payment of the loan taken by her husband. The said cheque, when presented for encashment, was dishonoured with the remarks ‘funds insufficient’ vide return memo The complainant issued a demand notice and upon her failure to repay the cheque amount, the subject criminal complaint came to be filed, wherein the petitioner has been summoned by the impugned order.hence this petition,

LEGAL PROVISIONS:

under Section 138 NI Act, talks about returning of a cheque which unpaid constitutes an offence only if such return is due to want of funds.

CONTENTIONS OF APPELLEANT:

The appellant through their counsel Mr.R.S.Kundu, submits that the cheque issued by the petitioner was not towards discharge of any legal liability but was issued as surety/security as she stood as a guarantor of the loan taken by her husband. Counsel also contented that even otherwise a reading of the loan document would show that the petitioner only stood as a guarantor and that the loan was taken by her husband in the name of his firm, which is a sole proprietorship firm. Counsel further contented that Thus, without impleading her husband, proceedings would not lie against the petitioner. The petition is contested by the complainant/respondent No.2, who submits that petitioner’s liability stands covered under the expression ‘other liability’ appearing in Section 138 of the NI Act and in this regard, he has relied upon the decision of the Supreme Court, Pertinently, the principal borrower i.e. the proprietorship firm of petitioner’s husband had issued a cheque of Rs.60 lacs towards part payment of its liability and upon dishonour of the said cheque, proceedings under section 138 NI Act were initiated vide CC No.3667/2018, which are pending consideration. Statedly, the petitioner has not been arrayed as an accused in the said proceedings. The counsel further contented that the present proceedings are with respect to a cheque of Rs.25 lacs issued by the petitioner, in the capacity of guarantor of the loan taken by her husband. The subject cheque has been issued by the petitioner from her individual account and she is the signatory of the same. Indeed, in terms of the decision in Pooja Ravinder Devidasani (Supra), the personal guarantor, who in that case was a former Managing Director, cannot be proceeded against under Section 141 NI Act and made vicariously liable unless specific averments are made leading to reasonable inference that the person was in-charge or involved in day-to-day affairs of the accused company. However,the counsel further contented that in case of a separate cheque issued by the guarantor, upon dishonour of the same, the presumption under Section 139 NI Act comes into the picture. No doubt, the said presumption is rebuttable, however, the same can only be rebutted by leading evidence and due consideration of the said evidence, which can only be done during trial. Pertinently, the counsel contented that  fact relating to loan taken by the petitioner’s husband as well as the issuance of the cheque by the petitioner are not disputed. The petitioner has indeed accepted that the said cheque was issued by her as security for the loan taken by her husband. The factum of dishonour of the cheque issued by the petitioner as well as the receipt of legal notice consequent to such dishonour are also not in dispute in the present proceedings. The only contention that has been raised before this Court is that since the petitioner had only stood as guarantor and it was her husband who had actually taken the loan, proceedings against her could not be continued in the absence of her husband being impleaded as a party.

COURTS ANALYSIS AND JUDGEMENT:

The court From the above extract,observed that the expression ‘other liability’ encompasses all distinct forms of liabilities including but not limited to the liability undertaken as a guarantor. Once the same is clarified, and considering the fact that the subject cheque is admitted to have been issued by the petitioner as well as the fact that the legal notice was received by the petitioner and that she had failed to make due payment, the ingredients of the offence under Section 138 NI Act are fulfilled. Upon consideration of the same, the presumption under Section 139 NI Act comes into action and while the same is rebuttable, it requires leading and appreciation of evidence, which can only be undertaken during trial. This Court, in its jurisdiction under Section 482 Cr.P.C., cannot undertake a detailed appreciation of the evidence and only has to form a prima facie view. In view of the discussion hereinabove, the Court is of the considered opinion that the petitioner has failed to make out a prima facie case thereby seeking setting aside of the summoning order dated 18.09.2018. Consequently, the court dismissed the petition.

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