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The Supreme Court grants appeals and clarifies the distinction between “legislation by reference” and “legislation by incorporation.”

CASE TITLE – Insolvency and Bankruptcy Board of India Versus Satyanarayan Bankatlal Malu & Ors.

CASE NUMBER – CRIMINAL APPEAL NO.3851 OF 2023/ 2024 INSC 319

DATED ON – 19.04.2024

QUORUM – Justice B.R. Gavai.

FACTS OF THE CASE

M/s. SBM Paper Mills Private Limited (Corporate Debtor) filed a petition on 4th September 2017 under Section 10 of the Code for initiation of the Corporate Insolvency Resolution Process (CIRP) of itself vide. The National Company Law Tribunal, Mumbai Bench (NCLT) vide order dated 17th October 2017, admitted the Petition and directed the moratorium to commence as prescribed under Section 14 of the Code and directed certain statutory steps to be taken as a consequence thereof. Vide the said order, the NCLT also appointed Mr. Amit Poddar as the Interim Resolution Professional (“RP”) to carry out the functions as prescribed under the provisions of the Code. In the meanwhile, Mr. Satyanarayan Malu, i.e., the Respondent/Ex-Director of the Corporate Debtor filed an application being M.A. No. 1396/2018 before the NCLT under Section 12A of the Code for the withdrawal of the aforesaid petition under Section 10 in light of a One Time Settlement (“OTS”) entered into with the sole Financial Creditor, i.e., Allahabad Bank. On the other hand, the RP had also filed an application being M.A. No. 827/2018 for the approval of the Resolution Plan. The NCLT vide order dated 20th December 2018 allowed the M.A. No. 1396/2018 filed by the Respondent while 3 observing the consent for withdrawal of the petition by the sole Financial Creditor vide letter dated 27th November 2018. However, on account of non-compliance of the terms of the OTS by the Respondents, the NCLT issued a Show-Cause Notice against them vide order dated 11th March 2019. The NCLT further found it to be a fit case to propose the prosecution of the Respondents vide order dated 20th August 2019 while hearing an application filed by the sole Financial Creditor being M.A. 494 and 495 of 2019 thereby seeking prosecution of the Respondent. Thereafter, on 22nd September 2020, the Appellant-Board filed a Complaint against the Respondents before the Sessions Judge in Special Case No. 853/2020 under the aforementioned provisions and for offences punishable under Section 73(a) and 235A of the Code for the non-compliance of the terms of the OTS and for not having filed the M.A. 1396/2018 under Section 12A of the Code through the RP. The Sessions Judge vide Order dated 17th March 2021 directed issuance of process against the Respondents and further directed them to be summoned on the next date of hearing. Being aggrieved thereby, the Respondents filed a Writ Petition No. 2592 of 2021 before the High Court of Judicature at Bombay, praying for the quashing and setting aside of the order dated 17th March 2021 passed by the Sessions Judge for the want of jurisdiction. The High Court vide impugned judgement and order dated 14th February 2022 allowed the Writ Petition No. 2592 of 2021 filed by the Respondents.

This appeal challenges the judgement and order dated 14th February 2022, passed by the learned Single Judge of the High Court of Judicature at Bombay in Writ Petition No.2592 of 2021, thereby allowing the petition filed by Satyanarayan Bankatlal Malu and Ramesh Satyanarayan Malu, the Ex-Directors of M/s. 1 SBM Paper Mills Pvt. Ltd. (hereinafter referred to as ‘the Respondents’) challenging the order dated 17th March 2021 passed by the learned Additional Sessions Judge, 58th Court in Special Case No.853 of 2020.

 

ISSUES

Whether the the present case is a case of ‘legislation by incorporation’ and not a case of ‘legislation by reference’?

 

LEGAL PROVISIONS

Section 435(3) of the Companies Act, 2013, lays out the qualification requirement for appointment as a judge in a Special Court. 

 

CONTENTION OF APPELLANTS

The Learned Counsel submitted that only the offences committed under the Companies 5 Act can be tried by Special Court consisting of Sessions Judge or Additional Sessions Judge. He submitted that the reasoning given by the learned Single Judge that the offences other than the Companies Act cannot be tried by the Special Court consisting of Sessions Judge or Additional Sessions Judge is totally in ignorance of the provisions of sub-section (1) of Section 236 of the Code. Learned ASG submitted that sub-section (1) of Section 236 of the Code provides that the offences under the Code shall be tried by the Special Court established under Chapter XXVIII of the Companies Act, 2013. He stated that the legislative intent is clear. There is no general reference to the provisions of the Companies Act. He contended that what has been done by sub section (1) of Section 236 of the Code is that the offences punishable under the Code are required to be tried by the Special Court established under Chapter XXVIII of the Companies Act, 2013. 6. Learned ASG therefore submitted that, if the reference made to the Special Court established under Chapter XXVIII of the Companies Act, 2013 is held to be legislation by incorporation, then the subsequent amendments to the Companies Act, 2013 would not be applicable to the Code. He submitted that since the Code has come into effect on 28th May, 2016, the provisions of Section 435, as it existed in Chapter XXVIII of the Companies Act, 2013 then, would only be applicable. He submitted that, if a statute is a complete Code in itself, then normally a reference to the provisions of the prior statute referred to in a subsequent statute would only have a restrictive operation. In such a case, it would be a ‘legislation by incorporation’ and not a ‘legislation by reference’. He therefore submits that the finding of the learned Single Judge of the High Court that in view of the Companies (Amendment) Act, 2017, the Special Court consisting of Sessions Judge or Additional Sessions Judge will not have the jurisdiction to entertain the complaint in question is totally erroneous. Learned ASG submits that, in any event, the learned Single Judge of the High Court has erred in quashing the complaint. It was submitted that, in the event the learned Single Judge found that the Special Court consisting of Sessions Judge or Additional Sessions Judge did not have jurisdiction and it is the Special Court of Metropolitan Magistrate or Judicial Magistrate First Class which has jurisdiction, then it should have returned the complaint for presentation of the same before the competent court having jurisdiction.

 

CONTENTIONS OF RESPONDENTS

The Learned Advocate on Record appearing for the Respondents raises a preliminary objection. He submitted that the point with regard to ‘legislation by incorporation’ was not argued before the learned Single Judge of the High Court and therefore the said contention cannot be permitted to be raised for the first time in this Court. He submitted that the judgment of this Court in the case of Bolani Ores Ltd. (supra) would not be applicable in the facts of the present case inasmuch as, in the said case what was incorporated in the subsequent statute was a definition of ‘motor vehicles’ as found in the earlier statute i.e. Motor Vehicles Act, 1939. It is therefore submitted that, the definition cannot be in a state of flux subject to the mercy of amendments to the Central Act. He submitted that in the said case, this Court was considering a provision which provided a substantive right to file an appeal. As such, a reference to Section 100 of the CPC was held amounting to be an ‘incorporation’ as the substantive right of appeal could not be left at the mercy of subsequent amendments to the CPC. Learned counsel stated that in the present case, a general reference is made to Chapter XXVIII of the Companies Act. It was therefore contended that, since a general reference is made, the present case would not be a case of ‘legislation by incorporation’ but would be a case of ‘legislation by reference’. Learned counsel submits that in any case, the Respondents Nos.1 and 2 have a good case on merits. He argued that the learned Single Judge of the High Court has not considered the merits of the matter and in the event this Court holds that the learned Single Judge was not justified in quashing the proceedings, the matter be remitted to the learned Single Judge of the High Court for deciding it afresh on merits.

 

COURT ANALYSIS AND JUDGEMENT

The Hon’ble Supreme Court held that the present case is a case of ‘legislation by incorporation’ and not a case of ‘legislation by reference’. In other words, the provision of Section 435 of the Companies Act, 2013 with regard to Special Court would become a part of Section 236(1) of the Code as on the date of its enactment. If that be so, any amendment to Section 435 of the Companies Act, 2013, after the date on which the Code came into effect would not have any effect on the provisions of Section 236(1) of the Code. The Special Court at that point of time only consists of a person who was qualified to be a Sessions Judge or an Additional Sessions Judge.  It was further stated that the Code has also suffered two subsequent amendments i.e. the 2015 Amendment and the 2018 Amendment. If the legislative intent was to give effect to the subsequent amendments in the Companies Act to Section 236(1) of the Code, nothing prevented the legislature from amending Section 236(1) of the Code. The legislature having not done that, 54 the provision with regard to the reference in Section 236(1) of the Code pertaining to Special Court as mentioned in Section 435 of the Companies Act, 2013 stood frozen as on the date of enactment of the Code. As such, they stated that the learned Judge of the High Court had erred in holding that in view of the subsequent amendment, the offences under the Code shall be tried only by a Metropolitan Magistrate or a Judicial Magistrate of the First Class. The Hon’ble Supreme Court further stated that the reasoning of the learned single judge of the High Court that in view of the 2018 Amendment only the offences under the Companies Act would be tried by a Special Court of Sessions Judge or Additional Sessions Judge and all other offences including under the Code shall be tried by a Metropolitan Magistrate or a Judicial Magistrate of the First Class is untenable. For a moment, even if it was held that the reference in Section 236(1) of the Code is a ‘legislation by reference’ and not ‘legislation by incorporation’, still the offences punishable under the Code having imprisonment of two years or more will have to be tried by a Special Court presided by a 55 Sessions Judge or an Additional Sessions Judge. Whereas the offences having punishment of less than two years will have to be tried by a Special Court presided by a Metropolitan Magistrate or a Judicial Magistrate of the First Class. The Supreme Court further stated that in any case, the learned single Judge of the High Court had grossly erred in quashing the complaint only on the ground that it was filed before a Special Court presided by a Sessions Judges. At the most, the learned single judge of the High Court could have directed the complaint to be withdrawn and presented before the appropriate court having jurisdiction.

The Learned Advocate-on-record for the respondent Nos.1 and 2, had submitted that in the event this Court holds that the Special Courts presided by a Sessions Judge or an Additional Sessions Judge will have jurisdiction to try the complaint under the Code, the Supreme Court stated that they should remand the matter to the High Court for deciding the matter afresh on merits. It was stated that the respondents have a good case on merits and there has been no adjudication on merits of the matter. In the result, the court allowed the appeal.

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Judgement Reviewed by – Gnaneswarran Beemarao

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Supreme Court Overturns Delhi HC Order on Caste Slur Case, Upholds Magistrate’s Order

CASE TITLE – Priti Agarwalla & Ors. v. The State of GNCT of Delhi & Ors.

CASE NUMBER – Criminal Appeal No(s). 348 of 2021 & 349 of 2021

DATED ON – 17.05.2024

QUORUM – Justice S.V.N Bhatti & Justice M.M. Sundresh

 

FACTS OF THE CASE

The Olympic Riding and Equestrian Academy, Eastern Jaunapur, New Delhi (for short, “OREA”), is a training facility for enthusiastic equestrian athletes. Mr. Kapil Nath Modi administers and runs the said training facility. Appellant Nos. 2, 3, 6 and Respondent No. 2 were the trainee athletes in OREA. Appellant No. 1 is the mother of Appellant No. 2. Appellant Nos. 4 and 5 are the parents of Appellant No. 6. The equestrian sport dates back to the ancient Greek era and has been an Olympic sport from 1900 onwards. The dressage sport is popularly known as horse ballet. The riders and their horses are judged based on their movement, calmness, suppleness and flexibility. The controversy considered in the present appeal reflects whether the athletes under training at OREA, who wanted to control the mind and body of a horse, have lost the calmness, suppleness and flexibility while being trained at OREA. On 03.04.2018, Appellant No. 4 filed a complaint before SHO, P.S. Fatehpur Beri, against the administrator of OREA. The said complaint is not made under any specific section of the Indian Penal Code, 1860. The administrator, however, considering the nature of the allegations in the FIR lodged against him before SHO, P.S. Fatehpur Beri, on 06.04.2018, moved an application for anticipatory bail before the Saket District Court, Delhi. On 11.04.2018, the anticipatory bail application of the administrator stood dismissed. On 12.04.2018, Appellant No. 1 and her husband filed yet another complaint against the administrator of OREA, on the alleged illtreatment meted out to their son/Appellant No. 2 by the administrator. Daksh Mittal wrote a letter dated 21.04.2018 to the administrator, informing the conspiracy being hatched by the members of the “Alliance” WhatsApp group to kill the administrator and attack Respondent No. 2 by pouring acid on Respondent No. 2. The administrator, on 22.04.2018, by referring to the letter dated 21.04.2018, filed a complaint before SHO P.S. Fatehpur Beri for protection and also to prevent any plan being executed either on the administrator or Respondent No. 2 by a few members of the WhatsApp group, “Alliance”. The Criminal Appeal concerns the complaint filed by Respondent No. 2 on 29.04.2018 before SHO P.S. Fatehpur Beri, South Delhi under the Scheduled Caste and Scheduled Tribe (Prevention of Atrocities) Act, 1989 (for short, “the Act of 1989”) against the Appellants herein

 

ISSUE

  1. Whether the order dated 09.07.2018 of the Metropolitan Magistrate conforms to the material on record and satisfies the mandate of section 156(3) of the CrPC?
  2. Whether the complaint(s) dated 29.04.2018/09.05.2018 make out a prima facie case of an offence under section 3(1)(r) and 3(1)(s) of the Act 1989?

 

CONTENTIONS BY THE APPELLANTS

The Learned Counsel representing the Appellants argued that the order under appeal had not appreciated the full conspectus of the controversy preceding the filing of the complaint dated 29.04.2018. He stated that the administrator of OREA had encouraged Respondent No. 2 to file a complaint alleging the commission of offences under the Act of 1989, though none existed over the years. The administrator, having been unsuccessful in getting anticipatory bail, etc., in the FIRs filed by the Appellants, had pursued or pressurized Respondent No. 2 to initiate prosecution by filing a complaint dated 29.04.2018 and the application dated 09.05.2018 under the Act of 1989 against the appellants. It was argued that these complaints are false and motivated. He argued that the complaint dated 29.04.2018 and the application dated 09.05.2018 do not disclose that an act or omission made punishable by any law for the time being in force had been made out. The offence alleged against Appellants as stated under section 3(1)(r) and 3(1)(s) of the Act of 1989, and to constitute an offence under section 3(1)(r) of the Act of 1989, the complaint must aver that the commission or omission has been made in public view, and stated that the allegations in the complaints are vague and indefinite and do not constitute an offence arising under the Act of 1989, independent of examination of any other material.

 

CONTENTIONS BY THE RESPONDENTS

The Learned Counsel representing the Respondents argued that the word “Faggot” used in the WhatsApp group “Alliance”, is a casteist remark, and should be punishable under the Indian Penal Code, 1860, and stated the Parliament, realizing the need to protect the marginalized sections of the Indian society from caste slurs or abetment of offences against people and property, enacted the Act of 1989, and that the grievances of Respondent No. 2 made through Complaint dated 29.04.2018 fell on deaf ears of the police. He argued that Respondent No. 2, considering his background, suffered in silence the slurs alleged at him for months and years, and filed the complaint and application on 29.04.2018 and 09.05.2018, respectively, so the delay, would not lead to any adverse inference on the alleged commission of an offence under section 3(1)(r) of the Act of 1989, and the argument on “public view” as sine qua non for attracting section 3(1)(r) is untenable in the circumstances of the case. He further stated that although OREA is a private training institute, the utterances satisfy as having been made within the academy. Therefore, these utterances once are made in OREA satisfy as having been made in public view, and the absence of names of witnesses or the public who witnessed this slur is not fatal.

 

COURT ANALYSIS AND JUDGEMENT

The Hon’ble Supreme Court after going through the facts of the case, summed it up and understood it as the accusation of intentionally abusing and humiliating Respondent No. 2 which spans over a period of two years between 2016 and 2018, and that the allegation prima facie appears to be an omnibus and ambiguous allegation, but however, does not refer to the place nor the public view before whom it was made. They stated that the accusations in the complaints do not satisfy as having been made in any place within public view. Thereby, directing registration of FIR and further steps as unsustainable. And also disagreed with the observations of the High Court of Delhi directing the registration of an FIR, for the reasons they had recorded stated is untenable and warrants interference in the appeal. The Hon’ble Supreme Court then held that the criminal appeal is allowed, and the order of the Metropolitan Magistrate dated 09.07.2018 should be upheld, which was against the directions of the High Court.

 

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Judgement Reviewed by – Gnaneswarran Beemarao

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Supreme Court: PMLA accused exempt from S.45 Conditions when furnishing bonds as per summons

CASE TITLE – Tarsem Lal v. Directorate of Enforcement

CASE NUMBER – CRIMINAL APPEAL NO.2608 OF 2024

DATED ON – 16.05.2024

QUORUM – Justice Abay S. Oka & Justice Ujjal Bhuyan

 

FACTS OF THE CASE

 The Appellants have been denied the benefit of anticipatory bail by the impugned orders. The Hon’ble Supreme Court was dealing with cases of the accused who were not arrested after registration of the Enforcement Case Information Report (ECIR) till the Special Court took cognizance under the PMLA of an offense punishable under Section 4 of the PMLA.  The cognizance was taken on the complaints filed under Section 44 (1)(b). These are the cases where the Appellants did not appear before the Special Court after summons were served to them. The Special Court issued warrants for procuring their presence.   After the warrants were issued, the Appellants applied for anticipatory bail before the Special Court. The applications were rejected. Unsuccessful accused have preferred these appeals since the High Court has turned down their prayers. And the Hon’ble Supreme Court, by interim orders, had protected the Appellants from arrest.

 

LEGAL PROVISIONS

Section 19 of the Prevention of Money Laundering Act (PMLA), 2002, prescribes the procedure to be followed by the arrest authority, the Enforcement Directorate (ED) in money laundering cases.

Section 65 of the Prevention of Money Laundering Act (PMLA), 2002, prescribes that the normal rules for criminal procedure, laid out in the Code of Criminal Procedure (CrPC), apply to investigations, arrests, seizures, and other legal actions taken under the PMLA.

Section 44 of the Criminal Procedure Code (CrPC), 1973, prescribes the powers vested in the Magistrate to make an arrest, and following that, can then decide on bail as per CrPC provisions.

Section 88 of the Criminal Procedure Code (CrPC), 1973, it empowers the court to take a bond for appearance from someone who could be issued a summons or warrant for their presence in court or from someone who is already present in court.

 

CONTENTIONS BY THE PETITIONER

The learned senior counsel, appearing for the Appellants in Criminal Appeal at Special Leave Petition (Crl.) No.121 of 2024 and the learned counsel representing other appellants have made detailed submissions that the power to arrest vesting in the officers of the Directorate of Enforcement (for short, ‘the ED’) under Section 19 of the PMLA cannot be exercised after the Special Court takes cognizance of the offense punishable under Section 4 of the PMLA, and that ff an accused appears according to the summons issued by the Special Court, there is no reason to issue a warrant of arrest against him or to take him into custody. They further stated that there is nothing inconsistent between Section 88 of the Code of Criminal Procedure, 1973 (for short, ‘the CrPC’) and the provisions of the PMLA. On a conjoint reading of Sections 4 and 5 of the CrPC with Section 65 of the PMLA, was of the view that it was apparent that all the provisions of the CrPC would apply to proceedings before the Special Court from the stage of filing a complaint under Section 44 (1)(b). Only those provisions of the CrPC that are inconsistent with the specific provisions of the PMLA will not apply. As there is no inconsistency between Section 88 of the CrPC and the provisions of the PMLA if, after service of summons, the accused offers to furnish bonds for appearance in terms of Section 88 of the CrPC, the Special Court should normally accept the bonds. After furnishing the bonds, if the accused fails to appear before the Special Court, recourse can always be taken by the Special Court to Section 89 by issuing a warrant for procuring the presence of the accused before the Special Court. And noted that once cognizance is taken based on a complaint, the Special Court cannot exercise the power of remand under Section 167 (2) of the CrPC.

CONTENTIONS BY THE RESPONDENT

The Respondent submitted that once an accused appears before the Special Court, he is deemed to be in it’s custody. Though an accused against whom an allegation of commission of an offense punishable under Section 4 of the PMLA is made can apply for the grant of anticipatory bail, such application shall also be governed by the conditions in Section 45 (1). They further contended that money laundering is an offence against the nation. Therefore, taking into consideration the gravity and severity of the offence under the   PMLA, mandatory compliance with the requirements of Section 45 (1) must always be ensured.

 

COURT ANALYSIS AND JUDGEMENT

As the punishment for an offence punishable under Section 4 of the PMLA is of imprisonment for more than three years, in view of clause (x) of Section 2 of the CrPC, the complaint will be treated as a warrant case. Under Section 204(1)(b), the Court can issue either a warrant or summons in a warrant case. Therefore, while taking cognizance, the Special Court has the discretion to issue either a summons or warrant. The Hon’ble Supreme Court also referred to on of it’s previous Judgement, Inder Mohan Goswami & Anr. v. State of Uttaranchal & Ors where it held that as a general rule, unless an accused is charged with an offence of heinous crime and it is feared that he is likely to tamper with or destroy the evidence or evade the process of law, the issue of summons is the rule. This Court held that in a complaint case, at the first instance, the Court should directly serve the summons along with the copy of the complaint. If service is avoided by the accused, initially, a bailable warrant should be issued. If that is not effective, a non­bailable warrant should be issued. The Hon’ble Supreme Court stated that it failed to understand the basis of the submission of the learned ASG that after an accused appears before a Special Court in compliance with the summons, he shall be deemed to be in custody. And noted the object of issuing a summons is to secure the accused’s presence before the Court.  It is not issued for taking an accused in custody. if a bond is not furnished under Section 88 by an accused and if the accused remains absent after that, the Court can always issue a warrant under Section 70 (1) of the CrPC for procuring the presence of the accused before the Court. In both contingencies, when the Court issues a warrant, it is only for securing the accused’s presence before the Court. When a warrant is issued in such a contingency, the accused don’t need to apply for bail. The Hon’ble Supreme Court stated that after cognizance is taken of the offence punishable under Section 4 of the PMLA based on a complaint under Section 44 (1)(b), the ED and its officers are powerless to exercise power under Section 19 to arrest a person shown as an accused in the complaint. And since the Appellants were not arrested by the ED until the complaint was filed, the appeals succeed, subject to some conditions The appellants shall appear before the concerned Special Court within one month from the date of the Judgement and shall file an undertaking before the Special Court that they shall regularly and punctually appear before the Special Court. And further stated that warrants issued against the Appellants shall be cancelled only after one month and held that the grant of the Anticipatory Bail is unnecessary.

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Judgement Reviewed by – Gnaneswarran Beemarao

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