Legal Insights from Recent Court Decisions and their Implications for Stakeholders – Sept 2023 Part 1-By Gunjan Chhabra

Legal Insights from Recent Court Decisions and their Implications for Stakeholders

By Gunjan Chhabra
(Visit here to read more Case Briefs by Gunjan Chhabra)

Can a 138 Complaint be Quashed if the Underlying Debt is Time Barred?

K. Hymavathi v. State of Andhra Pradesh (2023) 99 SC

This case delves into the appeal against the High Court’s order quashing a criminal complaint under Section 138 of the Negotiable Instruments Act. The Supreme Court emphasizes the need to consider evidence when determining whether a debt or liability is time-barred, highlighting key points:

  1. Mixed Question of Law and Evidence: In cases under the NI Act, the assessment of whether a debt or liability is time-barred should be based on both legal principles and available evidence.
  2. Threshold Jurisdiction: The Court clarifies that interference under Section 482 of the CrPC before the evidence stage is justified only when the amount is clearly irrecoverable. This is the threshold jurisdiction. This principle draws on precedents like A.V. Murthy vs. B.S. Nagabasavanna (2002) 2 SCC 642 and S. Natarajan vs. Sama Dharman & Anr. (2021) 6 SCC 413.
  3. Limitation Consideration: The High Court’s decision was challenged based on the limitation period. Although the promissory notes dated back to 2012 and the cheques in question were issued in 2017, the promissory note explicitly stated an obligation to repay by December 2016. According to Article 34 of the Schedule of Limitation Act, the limitation for a promissory note is 3 years from the expiration of the fixed period. Therefore, both the cheque issuance in April 2017 and the complaint filed in July 2017 fall well within the limitation period.

In light of these considerations, the Supreme Court overturned the High Court’s quashing order, reinstating the complaints for further proceedings.

Remedy for when the MSME Council Delays Appointing an Arbitrator

Microvision Technologies Pvt. Ltd. v. Union of India (2023) 726 HC

This case involves a review petition seeking to review a District Court’s order. The petitioner, a supplier under the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act), had been awarded contracts for the electrification of surveillance systems for Central Railways at specific locations.

When disputes arose, the matter was initially referred for conciliation under Section 18(2) of the MSME Act, and upon its failure, it was referred to arbitration under Section 18(3) of the same Act. During this process, the petitioner filed an application under Section 11(6) of the Arbitration & Conciliation Act, 1996, resulting in the appointment of a sole arbitrator who concluded the proceedings by passing an award.

This award was challenged as being patently illegal. In response, the review petitioner filed a transfer petition to the Nashik Court, citing Section 18 of the MSME Act as the basis for Nashik’s jurisdiction.

However, the court where the challenge was initially filed rejected the transfer petition, arguing that since the arbitration agreement specified Mumbai as the seat, Nashik District Court had no authority to appoint the arbitrator.

In response to this refusal to transfer, the present review was filed.

The Court made the following observations:

  1. Impact of Arbitration Agreement: The High Court’s assertion that the arbitration agreement remained valid in the face of FC’s powers under Section 18 of the MSME Act was deemed incorrect. This was in line with the precedent set by Gujarat State Petronet Limited Vs. MSEFC 2010 SCC OnLine Bom 2208, which overturned Steel Authority of India Ltd. Vs. MSEFC AIR 2018 Bombay 265.
  2. Clarifying the Appointment Provisions under the Arbitration & Conciliation Act, 1996 – It was pointed out that the application had been filed under Section 11(6) of the A&C Act, not 11(5). This provision pertains to the appointment of an arbitrator in cases where the institution (in this instance, the MSEFC) fails to do so.
  3. Harmonizing Jurisdiction under the MSME Act – In such a situation, it was deemed relevant to harmonize Section 11(6) with Section 18(4) of the MSME Act. According to the latter, the MSEFC’s jurisdiction is determined by the supplier’s location, which in this case was Nashik.

Consequently, the review led to the reconsideration of the challenge order, resulting in the restoration of the file and the transfer of the petition to the Nashik District Court.

Guideline by Court when two Benches of the Same Strength have rendered different Judgments

In the case of Union Territory of Ladakh and Ors. v. Jammu & Kashmir National Conference & Anr., decided on 06.09.2023 by the Supreme Court of India, the matter revolved around the denial of a symbol to the Respondent political party for the upcoming elections in a Development Council in Kargil.

In addition to deliberating on the powers of the election commission and a discussion on the entitlement of the Respondent to the symbol, the Court made noteworthy observations:

  1. The Court emphatically stated that no litigant should doubt that systemic delays or inaction by the courts would thwart justice. The Court asserted its authority to rectify such situations, even if it meant reversing circumstances to restore the status quo (citing Nabam Rebia and Bamang Felix v Deputy Speaker, Arunachal Pradesh Legislative Assembly, (2016) 8 SCC 1).
  2. It clarified that the referral of the 5-judge bench decision to a larger bench for review in 2023 (as referenced in Subhash Desai v Principal Secretary, Governor of Maharashtra, 2023 SCC OnLine SC 607) did not nullify the established legal principle. A mere reference to a larger bench does not unsettle declared law.
  3. The Court underlined that High Courts must proceed to decide matters based on existing law, without waiting for the outcome of a reference or review petition, unless specifically directed by the Supreme Court. High Courts should not refuse to follow a judgment simply because it has been questioned by a later Coordinate Bench.
  4. When confronted with conflicting judgments by Benches of equal strength, the Court emphasized that High Courts should follow the earlier one (relying on National Insurance Company Limited v Pranay Sethi, (2017) 16 SCC 680).

In light of these observations, the Appeal was dismissed.

Analysing the Evidence Required to Quash a Criminal Complaint against a Retiring Partner of a Firm

In the case of Riya Basri v. Mark Alexander, decided on 23.08.2023 (2023) 94 SC, by the Supreme Court of India, the matter involved an appeal against a common order of the Meghalaya High Court that had quashed criminal complaints filed under Section 138 read with Sections 141 and 142 of the Negotiable Instruments Act.

The case centred around cheques issued by Respondent no. 3, a partnership firm, with other respondents being its partners, to the Appellant for rental payments.

When proceedings under the Negotiable Instruments Act were initiated, Respondents 1 and 2 filed a petition seeking the quashing of the complaints, which was granted in their favor by the High Court. Respondent 1’s argument was that at the time the cheques were issued, Respondent 1 (“retiring partner”) had already retired from the firm.

The primary issue before the Supreme Court was whether the quashing against Respondent 1 was justified.

The Court made the following observations:

  1. The plea of retirement should be examined in light of the evidence. Despite the disputing partners claim that a retirement deed in his favour was executed in April 2018 before the issuance of the cheques, it was evident that a public notice of retirement was issued by the firm only in February 2022, after the criminal complaints were filed and immediately after the trial court issued the summoning order.
  2. The High Court’s powers under Section 482 of the Criminal Procedure Code can be invoked only when there is unimpeachable and incontrovertible evidence indicating that the partner of the firm had no involvement in the issuance of the cheques.
  3. This was not the case in the present situation, as Respondent, that is the retiring partner, did not contend that the partnership deed classified him as a sleeping partner of the firm.

In light of these considerations, the quashing order was set aside in relation to retiring partner, and he was reinstated as an accused in the criminal complaint.

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