RATHISH BABU UNNIKRISHNAN versus THE STATE (GOVT. OF NCT OF DELHI) & ANR. on 26 April 2022

[2022] 4 S.C.R. 989

RATHISH BABU UNNIKRISHNAN

v.

THE STATE (GOVT. OF NCT OF DELHI) & ANR.

(Criminal Appeal Nos. 694-695 of 2022)

APRIL 26, 2022

[K. M. JOSEPH AND HRISHIKESH ROY, JJ.]

Code of Criminal Procedure, 1973: s.482 – Scope of –Summoning order passed against appellant u/s.138 of NI Act –Petition u/s.438 for quashing summoning order – High Court opinedthat the grounds agitated by the appellant are “factual defences”which should not be considered within the parameters of limitedenquiry permissible in petition u/s.482 – According to the appellant,the concerned post-dated cheques drawn by him in favour of thecomplainant were contingent/security cheques for buyback of sharesof appellant’s company held by the complainant, and therefore thecheques could not have been prematurely presented to the bankand should have been presented for encashment only after transferof the complainant’s shareholding in the appellant’s company – Inother words, as the complainant was still holding the shares of theappellant’s company when the cheques were presented, thecomplainant is not entitled to receive any payment at that stage,through encashment of the cheques, made available to him – Held:The burden of proving that there is no existing debt or liability, is tobe discharged in the trial – The transactional arrangement betweenthe complainant and the accused reveals the nature of obligationsthat both had undertaken – The cheques in question were acceptedby the complainant for an agreed price consideration, for the sharesin the appellant’s company – According to the complainant, theappellant is to first pay and then as per the usual practice in thetrade, the shares would be transferred to the appellant in due coursewithin the time permitted by law – A bare perusal of s.56(1) of theCompanies Act, 2013 indicates that a transfer of securities of acompany can take place only when a proper instrument of transferis effectuated – In shares transactions, there is a time lag betweenmoney going out from the buyer and shares reaching to the seller –

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AA careful reading of the complaint and order passed by Magistrateshowed that a possible view is taken that the cheques drawn were,in discharge of a debt for purchase of shares – In any case, whenthere is legal presumption, it would not be judicious for the quashingCourt to carry out a detailed enquiry on the facts alleged, withoutfirst permitting the trial Court to evaluate the evidence of the partiesB– The quashing proceedings must not become an expedition intothe merits of factual dispute, so as to conclusively vindicate eitherthe complainant or the defence.

Conclusion

Code of Criminal Procedure, 1973: s.482 – Quashing ofCproceedings at preliminary stage – Propriety of – Held: The Courtshould be slow to grant the relief of quashing a complaint at a pre-trial stage, when the factual controversy is in the realm of possibilityparticularly because of the legal presumption, as in this matter –The factual defence without having to adduce any evidence needto be of an unimpeachable quality, so as to altogether disprove theDallegations made in the complaint– The consequences of scuttlingthe criminal process at a pre-trial stage can be grave and irreparable– Quashing proceedings at preliminary stages will result in finalitywithout the parties having had an opportunity to adduce evidenceand the consequence then is that the proper forum i.e., the trialECourt is ousted from weighing the material evidence – If this isallowed, the accused may be given an un-merited advantage in thecriminal process – Also because of the legal presumption, when thecheque and the signature are not disputed by the appellant, thebalance of convenience at this stage is in favour of the complainant/prosecution, as the accused will have due opportunity to adduceFdefence evidence during the trial, to rebut the presumption– Situatedthus, to non-suit the complainant, at the stage of the summoningorder, when the factual controversy is yet to be canvassed andconsidered by the trial court will not be judicious– Based upon aprima facie impression, an element of criminality cannot entirely beGruled out here subject to the determination by the trial Court–Therefore, when the proceedings are at a nascent stage, scuttlingof the criminal process is not merited.

Dismissing the appeals, the Court

HELD: 1.1 The transactional arrangement between thecomplainant and the accused reveals the nature of obligationsthat both had undertaken. The cheques in question were acceptedby the complainant for an agreed price consideration, for theshares in the appellant’s company. According to the complainant,the appellant is to first pay and then as per the usual practice inthe trade, the shares would be transferred to the appellant in duecourse within the time permitted by law. A bare perusal of Section56(1) of the Companies Act, 2013 indicates that a transfer ofsecurities of a company can take place only when a properinstrument of transfer is effectuated. The operation of legallytransferring shares involves several distinct steps. At first, acontract of sale needs to be entered upon. The nature oftransaction in this contract logically then requires payment ofthe price by the prospective transferee to fulfil their promisefirst. In exchange, transferor would move to fill Form SH-4 andthus, effectuate a valid instrument. Depending on the nature ofthe company and its Articles of Association, then upon thepresentation of the instrument of transfer to the board of thecompany and its acceptance by the board, the entry of thetransferee in the register of the company in place of the transferor,takes place. Thus, the transfer of share is complete. To say it inanother way, in shares transactions, there is a time lag betweenmoney going out from the buyer and shares reaching to the seller.In earlier days the time gap was longer. It has now becomespeedier but the gap still remains. The share transactions in Indiagenerally follows this pattern. [Para 9][996-E-H; 997-A-B]

2. The burden of proving that there is no existing debt orliability, is to be discharged in the trial. The legal presumption ofthe cheque having been issued in the discharge of liability mustalso receive due weightage. In a situation where the accusedmoves Court for quashing even before trial has commenced, theCourt’s approach should be careful enough to not to prematurelyextinguish the case by disregarding the legal presumption whichsupports the complaint. At any rate, whenever facts are disputedthe truth should be allowed to emerge by weighing the evidence.[Paras 10-12][997-C, E-F; 998-B]

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992SUPREME COURT REPORTS

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992SUPREME COURT REPORTS

AM.M.T.C. Ltd. & Anr. v. Medchl Chemicals and Pharma(P) Ltd. & Anr. (2002) 1 SCC 234 : [2001] 5 Suppl.SCR 265; Rangappa v. Sri Mohan (2010) 11 SCC 441: [2010] 6 SCR 507; Rajeshbhai Muljibhai Patel v. Stateof Gujarat (2020) 3 SCC 794 : [2020] 2 SCR 687 –relied on.B

3. On careful reading of the complaint and the order passedby the Magistrate, what is discernible is that a possible view istaken that the cheques drawn were, in discharge of a debt forpurchase of shares. In any case, when there is legal presumption,it would not be judicious for the quashing Court to carry out aCdetailed enquiry on the facts alleged, without first permitting thetrial Court to evaluate the evidence of the parties. The quashingCourt should not take upon itself, the burden of separating thewheat from the chaff where facts are contested. The Court shouldbe slow to grant the relief of quashing a complaint at a pre-trialDstage, when the factual controversy is in the realm of possibilityparticularly because of the legal presumption, as in this matter.The factual defence without having to adduce any evidenceneed to be of an unimpeachable quality, so as to altogetherdisprove the allegations made in the complaint. [Paras 13 and16] [998-F-G; 999-H; 1000-A-B]E

State of Haryana v. Bhajan Lal AIR 1992 SC 604 :[1990] 3 Suppl. SCR 259 – relied on.

4. The consequences of scuttling the criminal process at apre-trial stage can be grave and irreparable. QuashingFproceedings at preliminary stages will result in finality withoutthe parties having had an opportunity to adduce evidence andthe consequence then is that the proper forum i.e., the trial Courtis ousted from weighing the material evidence. If this is allowed,the accused may be given an un-merited advantage in the criminalprocess. Also because of the legal presumption, when the chequeGand the signature are not disputed by the appellant, the balanceof convenience at this stage is in favour of the complainant/prosecution, as the accused will have due opportunity to adducedefence evidence during the trial, to rebut the presumption.Situated thus, to non-suit the complainant, at the stage of theH

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summoning order, when the factual controversy is yet to becanvassed and considered by the trial court will not be judicious.Based upon a prima facie impression, an element of criminalitycannot entirely be ruled out here subject to the determination bythe trial Court. Therefore, when the proceedings are at a nascentstage, scuttling of the criminal process is not merited. [Paras 17and 18][1000-B-E]

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HMT Watches Limited v. M.A. Abida & Anr (2015) 11SCC 776 : [2015] 3 SCR 719; Rajiv Thapar & Ors. v.Madan Lal Kapoor (2013) 3 SCC 330 : [2013] 3SCR 52 – referred to.

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CRIMINAL APPELLATE JURISDICTION: Criminal AppealNos. 694-695 of 2022.

From the Judgment and Order dated 02.08.2019 of the High Courtof Delhi at New Delhi in Crl. M.C. No.414 of 2019 and Crl. M.A.No.1754 of 2019.

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Krishnamohan K., Gautam Dhamija, Ms. Dania Nayyar, Advs.for the Appellant.

K. M. Nataraj, ASG, Ms. Rebecca M. John, Sr. Adv., GurmeetSingh Makker, Ms. Swarupama Chaturvedi, Shailesh Madiyal, AmitSharma, Joseph Pookkatt, Prashant Kumar, Shikhar Sarin, Nilesh Sharma,Dhawesh Pahuja, M/s AP & J. Chambers, Advs. for the Respondent.

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AThe Judgment of the Court was delivered byHRISHIKESH ROY, J.

Leave granted.

2. The challenge in these appeals is to the judgment and orderBdated 02.08.2019 in the Crl. M.C. No.414/2019 and Crl.M.A.No.1754/2019 whereby the Delhi High Court dismissed the application underSection 482 of the Code of Criminal Procedure, 1973 (hereinafter referredto as “Cr.P.C”) for quashing of the summoning order dated 1.6.2018 andthe order framing notice dated 3.11.2018, issued against the appellantunder Section 138 of the Negotiable Instruments Act, 1881 (hereinafterCreferred to as the ‘N.I. Act’). On the criminal complaint instituted byone Satish Gupta (respondent no.2), the order under Section 251 of theCr.P.C. was issued against the appellant by the Magistrate’s Court. TheHigh Court on considering the rival contention opined that the groundsagitated by the appellant are “factual defences” which should not beDconsidered within the parameters of limited enquiry permissible in apetition under Section 482 Cr.P.C. Accordingly, the petition was dismissedbut the accused’s liberty to raise his defence in the competent Courtwas safeguarded in the impugned order.

3. For the appellant, Mr. Krishnamohan K., the learned counselEargues that without satisfying the essential ingredients for the offenceunder Section 138 of the N.I. Act to the effect that the dishonouredcheque received by the complainant is against “legally enforceable debtor liability”, the criminal process could not have been issued. Relying onfew judgments, it is next argued that the ingredients necessary toconstitute the offence under Section 138 of the N.I. Act is missing in theFinstant case and therefore the appellant cannot be prosecuted for theoffence under the said provision. According to the appellant, theconcerned post-dated cheques drawn by him in favour of the complainantwere, contingent/security cheques for buyback of shares of AATAcademy (appellant’s company), held by the complainant, and thereforeGthe cheques could not have been prematurely presented to the bank andshould have been presented for encashment only after transfer of thecomplainant’s shareholding in the appellant’s company. In other words,as the complainant was still holding the shares of the appellant’s companywhen the cheques were presented, the complainant is not entitled toreceive any payment at that stage, through encashment of the cheques,Hmade available to him

4. The complainant per-contra contends that when the chequeare issued and the signatures thereon are admitted, the presumption of alegally enforceable debt will arise in favour of the holder of the cheque.In a situation such as this, it is for the accused to rebut the legalpresumption by adducing necessary evidence before the trial Court.Reading the provisions of Section 118 of the N.I. Act, it is submitted byMr. K.M. Nataraj, learned ASG and Ms. Rebecca M. John the learnedSenior Counsel for the complainant, that it is obligatory for the Court toraise the legal presumption against the accused when his cheque isdishonoured on presentation. The learned Magistrate therefore correctlydrew such presumption which of course is rebuttable by the appellant,by adducing evidence in course of trial. It is specifically contended bythe complainant that in share purchase transactions, the consideration isfirst paid to the seller as per the customary practice and only thereafterthe formalities with respect to the share transfer is completed. In supportof such contention, the respondent relies on Section 56 (1) of theCompanies Act, 2013 and also the Form SH-4 in the said Act, relatingto transfer of securities.

5. The records would show that there were transactions betweenthe parties under which the complainant invested a substantial sum inthe appellant’s company. At later stage, dispute arose amongst them butthey resolved that the invested money would be returned to thecomplainant and the shares allotted to the complainant will beproportionately transferred to the appellant. With such understanding,the four cheques forming the part of the criminal complaint were handedover by the appellant. When the complainant presented one of thosecheques, the same was dishonoured by the bank with the endorsement,“fund insufficient”. Further, the complainant issued notice stating thatthe appellant had failed to make the due payment. Thereafter, he filedthe complaint under Section 138 of the N.I. Act which led to the summonsand process against the appellant.

6. As noted earlier, the appellant’s basic contention is that thecheque in question was not issued in discharge of “legally recoverabledebt”. They also raised a contention on the obligation of the complainantto transfer the concerned shares. A defence plea is raised by the appellantto the effect that the cheques in question were issued as “security” andnot in discharge of any “legally recoverable debt”.

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A7. The learned Judge of the Delhi High Court while consideringthe petition under Section 482 Cr.P.C kept in mind the scope of limitedenquiry in this jurisdiction by referring to the ratio in HMT WatchesLimited vs. M.A. Abida & Anr[1]. and in Rajiv Thapar & Ors. vs. MadanLal Kapoor[2] and opined that the exercise of powers by the High Courtunder Section 482 Cr.P.C, would negate the complainant’s case withoutBallowing the complainant to lead evidence. Such a determination shouldnecessarily not be rendered by a Court not conducting the trial. Therefore,unless the Court is fully satisfied that the material produced wouldirrefutably rule out the charges and such materials being of sterling andimpeccable quality, the invocation of Section 482 Cr.P.C power to quashCthe criminal proceedings, would be unmerited. Proceeding on this basis,verdict was given against the appellant, who was facing the proceedingunder Section 138 of the N.I. Act. With all liberty given to the appellantto raise his defence in the trial court, his quashing petition came to bedismissed. D8. The issue to be answered here is whether summons and trialnotice should have been quashed on the basis of factual defences. Thecorollary therefrom is what should be the responsibility of the quashingCourt and whether it must weigh the evidence presented by the parties,at a pre-trial stage. E9. The transactional arrangement between the complainant andthe accused reveals the nature of obligations that both had undertaken.The cheques in question were accepted by the complainant for an agreedprice consideration, for the shares in the appellant’s company. Accordingto the complainant, the appellant is to first pay and then as per the usualpractice in the trade, the shares would be transferred to the appellant inFdue course within the time permitted by law. A bare perusal of Section56(1) of the Companies Act, 2013 indicates that a transfer of securitiesof a company can take place only when a proper instrument of transferis effectuated. The operation of legally transferring shares involvesseveral distinct steps. At first, a contract of sale needs to be enteredGupon. The nature of transaction in this contract logically then requirespayment of the price by the prospective transferee to fulfil their promisefirst. In exchange, transferor would move to fill Form SH-4 and thus,effectuate a valid instrument. Depending on the nature of the company 1 (2015) 11 SCC 776H2 (2013) 3 SCC 330

1 (2015) 11 SCC 776H2 (2013) 3 SCC 330

and its Articles of Association, then upon the presentation of theinstrument of transfer to the board of the company and its acceptanceby the board, the entry of the transferee in the register of the companyin place of the transferor, takes place. Thus, the transfer of share iscomplete. To say it in another way, in shares transactions, there is a timelag between money going out from the buyer and shares reaching to theseller. In earlier days the time gap was longer. It has now become speedierbut the gap still remains. The share transactions in India generally followsthis pattern.

10. It is also relevant to bear in mind that the burden of provingthat there is no existing debt or liability, is to be discharged in the trial.For a two judges Bench in M.M.T.C. Ltd. & Anr. vs. Medchl Chemicalsand Pharma (P) Ltd. & Anr.[3], Justice S.N. Variava made the followingpertinent observation on this aspect: - “17. There is therefore no requirement that the complainantmust specifically allege in the complaint that there was asubsisting liability. The burden of proving that there was noexisting debt or liability was on the respondents. This theyhave to discharge in the trial. At this stage, merely on thebasis of averments in the petitions filed by them the High Courtcould not have concluded that there was no existing debt orliability.”

11. The legal presumption of the cheque having been issued in thedischarge of liability must also receive due weightage. In a situationwhere the accused moves Court for quashing even before trial hascommenced, the Court’s approach should be careful enough to not toprematurely extinguish the case by disregarding the legal presumptionwhich supports the complaint. The opinion of Justice K.G. Balakrishnanfor a three judges Bench in Rangappa vs. Sri Mohan[4]would at thisstage, deserve our attention: - “26.... we are in agreement with the respondent claimant thatthe presumption mandated by Section 139 of the Act doesindeed include the existence of a legally enforceable debt orliability. As noted in the citations, this is of course in the natureof a rebuttable presumption and it is open to the accused to 3 (2002) 1 SCC 234

4 (2010) 11 SCC 441

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Araise a defence wherein the existence of a legally enforceabledebt or liability can be contested. However, there can be nodoubt that there is an initial presumption which favours thecomplainant.”

12. At any rate, whenever facts are disputed the truth should beBallowed to emerge by weighing the evidence. On this aspect, we maybenefit by referring to the ratio in Rajeshbhai Muljibhai Patel vs. Stateof Gujarat[5]where the following pertinent opinion was given by JusticeR. Banumathi: - “22. ………….. When disputed questions of facts are involvedCwhich need to be adjudicated after the parties adduceevidence, the complaint under Section 138 of the NI Act oughtnot to have been quashed by the High Court by takingrecourse to Section 482 CrPC. Though, the Court has thepower to quash the criminal complaint filed under Section138 of the NI Act on the legal issues like limitation, etc.Dcriminal complaint filed under Section 138 of the NI Actagainst Yogeshbhai ought not to have been quashed merelyon the ground that there are inter se disputes betweenAppellant 3 and Respondent 2. Without keeping in view thestatutory presumption raised under Section 139 of the NI Act,Ethe High Court, in our view, committed a serious error inquashing the criminal complaint in CC No. 367 of 2016 filedunder Section 138 of the NI Act.”

13. Bearing in mind the principles for exercise of jurisdiction in aproceeding for quashing, let us now turn to the materials in this case. Oncareful reading of the complaint and the order passed by the Magistrate,Fwhat is discernible is that a possible view is taken that the chequesdrawn were, in discharge of a debt for purchase of shares. In any case,when there is legal presumption, it would not be judicious for the quashingCourt to carry out a detailed enquiry on the facts alleged, without firstpermitting the trial Court to evaluate the evidence of the parties. TheGquashing Court should not take upon itself, the burden of separating thewheat from the chaff where facts are contested. To say it differently,the quashing proceedings must not become an expedition into the meritsof factual dispute, so as to conclusively vindicate either the complainantor the defence.

H5 (2020) 3 SCC 794

RATHISH BABU UNNIKRISHNAN v. THE STATE (GOVT. OF NCTOF DELHI) & ANR. [HRISHIKESH ROY, J.]

14. The parameters for invoking the inherent jurisdiction of theCourt to quash the criminal proceedings under S.482 CrPC, have beenspelled out by Justice S. Ratnavel Pandian for the two judges’ bench inState of Haryana v. Bhajan Lal[6], and the suggested precautionaryprinciples serve as good law even today, for invocation of power underSection 482 of the Cr.P.C.

“103. We also give a note of caution to the effect that thepower of quashing a criminal proceeding should be exercisedvery sparingly and with circumspection and that too in therarest of rare cases; that the court will not be justified inembarking upon an enquiry as to the reliability or genuinenessor otherwise of the allegations made in the FIR or thecomplaint and that the extraordinary or inherent powers donot confer an arbitrary jurisdiction on the court to actaccording to its whim or caprice.”

15. In the impugned judgment, the learned Judge had rightly reliedupon the opinion of Justice J.S.Khehar for a Division Bench in RajivThapar (supra), which succinctly express the following relevantparameters to be considered by the quashing Court, at the stage of issuingprocess, committal, or framing of charges, “28. The High Court, in exercise of its jurisdiction underSection 482 CrPC, must make a just and rightful choice. Thisis not a stage of evaluating the truthfulness or otherwise ofthe allegations levelled by the prosecution/ complainantagainst the accused. Likewise, it is not a stage for determininghow weighty the defences raised on behalf of the accusedare. Even if the accused is successful in showing somesuspicion or doubt, in the allegations levelled by theprosecution/ complainant, it would be impermissible todischarge the accused before trial. This is so because it wouldresult in giving finality to the accusations levelled by theprosecution/complainant, without allowing the prosecution orthe complainant to adduce evidence to substantiate the same.”

16. The proposition of law as set out above makes it abundantlyclear that the Court should be slow to grant the relief of quashing a A

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Acomplaint at a pre-trial stage, when the factual controversy is in therealm of possibility particularly because of the legal presumption, as inthis matter. What is also of note is that the factual defence withouthaving to adduce any evidence need to be of an unimpeachable quality,so as to altogether disprove the allegations made in the complaint.

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17. The consequences of scuttling the criminal process at a pre-trial stage can be grave and irreparable. Quashing proceedings atpreliminary stages will result in finality without the parties having had anopportunity to adduce evidence and the consequence then is that theproper forum i.e., the trial Court is ousted from weighing the materialCevidence. If this is allowed, the accused may be given an un-meritedadvantage in the criminal process. Also because of the legal presumption,when the cheque and the signature are not disputed by the appellant, thebalance of convenience at this stage is in favour of the complainant/prosecution, as the accused will have due opportunity to adduce defenceevidence during the trial, to rebut the presumption.D

18. Situated thus, to non-suit the complainant, at the stage of thesummoning order, when the factual controversy is yet to be canvassedand considered by the trial court will not in our opinion be judicious.Based upon a prima facie impression, an element of criminality cannotEentirely be ruled out here subject to the determination by the trial Court.Therefore, when the proceedings are at a nascent stage, scuttling of thecriminal process is not merited.

19. In our assessment, the impugned judgment is rendered byapplying the correct legal principles and the High Court rightly declinedFrelief to the accused, in the quashing proceeding. Having said this, torebut the legal presumption against him, the appellant must also get afair opportunity to adduce his evidence in an open trial by an impartialjudge who can dispassionately weigh the material to reach the truth ofthe matter. At this point, one might benefit by recalling the words ofGHarry Brown, the American author and investment advisor who so aptlysaid - “A fair trial is one in which the rules of evidence are honored,the accused has competent counsel, and the judge enforce the propercourt room procedure – a trial in which every assumption can bechallenged.” We expect no less and no more for the appellant.

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20. We might add before parting that the observation made in thisjudgment is only for the limited purpose of this order and those shouldnot stand in the way of the trial Court to decide the case on merit. Theappeals are accordingly dismissed leaving the parties to bear their owncost.

Devika Gujral

Appeals dismissed.

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