Banking Law & Incidental matters part 2
Summary of Question- Complaint under section 138 of NI Act and section 420 I.P.C.
Question – Is it necessary to file a separate complaint under section 138 of NI Act and section 420 I.P.C.
“whenever any complaint is filed merely and only for the alleged offence under section 138 of the Act then even it is the foremost duty of the learned Magistrate to carefully screen and examine each and every allegation in the complaint and if there is/are a manifest circumstances prima facie constituting an offence of cheating under the Indian Penal Code, then while taking cognizance and issuing the process he should see to it that it is not confined only to section 138 of the Act but shall also issue process under section 420 of the Indian Penal Code, 1860, as well. The learned Magistrates should know and know for ever and accordingly bear in mind that doing justice is not a mere a matter of formality, but it is a matter of substance, where a person committing offences under several Acts should be duly served with processes for all the alleged offences.”
2. Therefore, if a complaint is files under section 138 but the statement made in the complaint amounts to offence under section 420 I.P.C also then the court will look into the matter whether offence under section 420 is also made out and issue process accordingly. It is not necessary to file separate complaint under section 138 and separate under section 420 also.
Summary of Question- Validity of 138 N.I. Act complaint by a POA holder
Question – Can a complaint under section 138 of N.I. Act be filed through Power of Attorney.
Answer- Yes. In certain fact-situations.
The Hon’ble Supreme Court has obderved and held in a case reported in AIR 2014 630 as under:
“In the light of the discussion, we are of the view that the power of attorney holder may be allowed to file, appear and depose for the purpose of issue of process for the offence punishable under Section 138 of the N.I. Act. An exception to the above is when the power of attorney holder of the complainant does not have a personal knowledge about the transactions then he cannot be examined. However, where the attorney holder of the complainant is in charge of the business of the complainant-payee and the attorney holder alone is personally aware of the transactions, there is no reason why the attorney holder cannot depose as a witness. Nevertheless, an explicit assertion as to the knowledge of the Power of Attorney holder about the transaction in question must be specified in the complaint. On this count, the fourth question becomes infructuous.
In view of the discussion, we are of the opinion that the attorney holder cannot file a complaint in his own name as if he was the complainant, but he can initiate criminal proceedings on behalf of his principal. We also reiterate that where the payee is a proprietary concern, the complaint can be filed (i) by the proprietor of the proprietary concern, describing himself as the sole proprietor of the "payee"; (ii) the proprietary concern, describing itself as a sole proprietary concern, represented by its sole proprietor; and (iii) the proprietor or the proprietary concern represented by the attorney holder under a power of attorney executed by the sole proprietor.”
Summary of Question- Compromise of 138 N.I. Act complaint in Appeal
Question – When accused has been convicted under section 138 N.I. Act, can it be compromised in Appeal .
In a case decided by the Hon’ble Supreme Court reported in (2005 )4SCC 162, short fact was that the Appellant was convicted by the Trial Court under Section 138 of the Negotiable Instruments Act and sentenced to undergo simple imprisonment for a period of one month and to pay compensation to the tune of Rs. 39,000/-. On appeal, the Sessions Court confirmed the conviction and sentence. Thereafter criminal revision application was also dismissed by Hon’ble Court. Then SLP was filed in the Supreme Court. In SLP, a joint petition of compromise was filed. The Apex Court permitted the parties to compound the offence. Accordingly, Appeal was allowed and conviction & sentence were set aside in view of the compromise and the appellant was acquitted of the charge.
Summary of Question- Notice under section 138 N.I. Act
Question – What should be the Intention in the Notice under section 138 N.I.Act.
Answer- Intention must be clear in the Notice that payment must be made within 15 days.
It has been held by the Hon’ble Delhi High court in a case reported in 2003 CriLJ 1053 that unless and until the intention is clear on the part of the person giving notice that the payment by the drawer of the cheque of the amount of cheque should be made within 15 days of receipt thereof any communication between the parties insisting for making the payment cannot be termed as a notice under Section 138 of the Act.
Summary of Question- Court Fee on complaint under section 138 N.I. Act
Question – whether ad valorem court fee is payable on 138 complaint.
It has been held by the Hon’ble Supreme Court in Government of NCT of Delhi and Anr. vs. Delhi High Court Bar Assn. that case that No Court fee shall be payble on the complaint filed under Section 138 of the Negotiable Instruments Act, 1881
Summary of Question- Gift to a Minor
Question – Whether a Gift to a Minor is valid under Transfer of Property Act.
It has been held by the Supreme Court in a case reported in AIR 2004 SC 1257 that a minor could legally accept a property gifted to him . A minor suffers disability from entering into a contract but he is thereby not incapable of receiving property. The Transfer of Property Act, 1882, does not prohibit transfer of property to a minor
Summary of Question- 138 N.I. Act prosecution against authorized signatory of company
Question – Whether authorized signatory of a company would not be liable for prosecution under Section 138 of the N. I. Act without the company being arraigned as an accused and without Notice to the Company.
In CRIMINAL APPEAL NO. 1465 OF 2009, decided on the 17th. January 2019, the Hon’ble Supreme Court referred to earlier decisions , and observed and held :
"In the absence of the company being arraigned as an accused, a complaint against the appellant was therefore not maintainable. The appellant had signed the cheque as a Director of the company and for and on its behalf. Moreover, in the absence of a notice of demand being served on the company and without compliance with the proviso to Section 138, the High Court was in error in holding that the company could now be arraigned as an accused."
Summary of Question- Signature Mismatch on cheque
Question – Whether mismatch of signature of drawer on cheque attracts 138 N.I. Act.
The Hon’ble Supreme Court decision reported in 2012(13)SCC 375.
Summary of Question- Supreme Court Guidelines on cheque bouncing
Question – What are the guidelines of Hon’ble Supreme Court for speedy disposal of cheque bouncing cases.
In a case reported in (2018) 1 SCC 560, the Hon'ble Supreme Court laid down following guidelines in the matter of cheque bouncing cases.
i) Offence Under Section 138 of the Act is primarily a civil wrong. Burden of proof is on Accused in view presumption Under Section 139 but the standard of such proof is "preponderance of probabilities". The same has to be normally tried summarily as per provisions of summary trial under the Code of Criminal Procedure but with such variation as may be appropriate to proceedings under Chapter XVII of the Act. Thus read, principle of Section 258 Code of Criminal Procedure will apply and the Court can close the proceedings and discharge the Accused on satisfaction that the cheque amount with assessed costs and interest is paid and if there is no reason to proceed with the punitive aspect.
ii) The object of the provision being primarily compensatory, punitive element being mainly with the object of enforcing the compensatory element, compounding at the initial stage has to be encouraged but is not debarred at later stage subject to appropriate compensation as may be found acceptable to the parties or the Court.
iii) Though compounding requires consent of both parties, even in absence of such consent, the Court, in the interests of justice, on being satisfied that the complainant has been duly compensated, can in its discretion close the proceedings and discharge the Accused.
iv) Procedure for trial of cases under Chapter XVII of the Act has normally to be summary. The discretion of the Magistrate under second proviso to Section 143, to hold that it was undesirable to try the case summarily as sentence of more than one year may have to be passed, is to be exercised after considering the further fact that apart from the sentence of imprisonment, the Court has jurisdiction Under Section 357(3) Code of Criminal Procedure to award suitable compensation with default sentence Under Section 64 Indian Penal Code and with further powers of recovery Under Section 431 Code of Criminal Procedure With this approach, prison sentence of more than one year may not be required in all cases.
v) Since evidence of the complaint can be given on affidavit, subject to the Court summoning the person giving affidavit and examining him and the bank's slip being prima facie evidence of the dishonor of cheque, it is unnecessary for the Magistrate to record any further preliminary evidence. Such affidavit evidence can be read as evidence at all stages of trial or other proceedings. The manner of examination of the person giving affidavit can be as per Section 264 Code of Criminal Procedure The scheme is to follow summary procedure except where exercise of power under second proviso to Section 143 becomes necessary, where sentence of one year may have to be awarded and compensation Under Section 357(3) is considered inadequate, having regard to the amount of the cheque, the financial capacity and the conduct of the Accused or any other circumstances.
Summary of Question- Applicability of section 202 Cr.P.C in cheque bouncing cases
Question – Whether Preliminary Enquiry is necessary in case of dishonour of cheque.
Answer- No, in certain facts-situations.
In the light of the following observation of the a Division Bench decision of the Hon’ble Calcutta High court in the case of S.S. Binu Vs. State of West Bengal decided on 03.5.2018 :
“In view of the above and taking into consideration the non-obstante clauses used in Sections 142, 142 (a), 143, 144, 145 and 147 of the said Act, 1881, as also finding that the scheme framed by the legislature in initiating a proceeding under Section 138 is different from that of the Cr.P.C., we arrive at an irresistible conclusion that the legislature has taken care of the interest of the complainant and the accused by exempting the complainant from facing the general rigors of Cr.P.C. at pre-summoning stage under Section 202 Cr.P.C. as amended under Section 19 of the Criminal Procedure (Amendment) Act, 2005 and protecting the accused by insisting upon the complainant to produce best possible stage at the pre-summon stage.”
“In view of the above, we find that in cases falling under Section 138 read with Section 141 of the N.I. Act, the Magistrate is not mandatorily required to comply with the provisions of Section 202 (1) before issuing summons to an accused residing outside the territorial jurisdiction of the learned Magistrate concerned.”
Summary of Question- Registration of Compromise Decree
Question – Is Registration of Compromise Decree is compulsory.
Answer wih rationale-
1. Vide AIR 1996 SC 19, it has been held by the Hon’ble supreme Court that it is to be examined in each case whether the parties have pre-existing right to the immovable property, or whether under the order or decree of the court one party having right, title or interest therein agreed or suffered to extinguish the same and created right, title or interest in praesenti in immovable property of the value of Rs. 100 or upwards in favour of other party for the first time, either by compromise or pretended consent. If latter be the position, then the document is compulsorily registrable.
2. Therefore, if the compromise decree creates right, title or interest in immovable property in favour of any party to the suit, then the compromise decree would require compulsory registration.
Summary of Question- Probate of WILL
Question – Is it necessary that in all case there must be Probate of WILL.
1. In respect of the issue whether a WILL is required to be compulsorily probated, it is necessary to refer to section 213 and section 57 of the Indian Succession Act which are reproduced below:-
Section 213- (1) No right as executor or legatee can be established in any Court of Justice, unless a Court of competent jurisdiction in India has granted probate of the will under which the right is claimed, or has granted letters of administration with the will or with a copy of an authenticated copy of the will annexed,
(2) This section shall not apply in the case of wills made by Muhammadans, and shall not apply:--
(i) in the case of wills made by any Hindu, Buddhist, Sikh or Jaina where such wills are of the classes specified in clauses (a) and (b) of Section 57, and
(ii) in the case of the wills made by any Parsi dying, after the commencement of the Indian Succession (Amendment) Act, 1962, where such wills are made within the local limits of the ordinary original civil jurisdiction of the High Courts at Calcutta, Madras, and Bombay, and where such wills are made outside those limits, in so far as they relate to immoveable, property situate within those limits."
Section 57- "The provisions of this part which are set out in Schedule III shall, subject to the restrictions and modifications specified therein, apply:--
(a) to all wills and codicils made by any Hindu, Buddisht, Sikh or Jaina, on or after the first day of September, 1870, within the territories which at the said date were subject to the Lieutenant Governor of Bengal or within the local limits of the ordinary original civil jurisdiction of the High Courts of judicature at Madras and Bombay, and
(b) to all such wills and codicils made outside those territories and limits so far as relates to immovable property situate within those territories or limits; and
(c) to all wills and codicils made by any Hindu, Buddhist, Sikh and Jaina on or after the first day of January, 1927, to which those provisions are not applied by clauses (a) and (b)."
2. In this connection, following observation of the Hon’ble Supreme Court in a case reported in AIR 2001 SC 1151 is relevant:
“The scope of Section 213(1) of the Act is that it prohibits recognition of rights as an executor or legatee under a will without production of a probate and sets down a rule of evidence and forms really a part of procedural requirement of the law of forum. Section 213(2) of the Act indicates that its applicability is limited to cases of persons mentioned therein. Certain aspects will have to be borne in mind to understand the exact scope of this section. The bar that is imposed by this section is only in respect of the establishment of the right as an executor or legatee and not in respect of the establishment of the right in any other capacity. The section does not prohibit the will being looked into for purposes other than those mentioned in the section. The bar to the establishment of the right is only for its establishment in a court of justice and not its being referred to in other proceedings before administrative or other Tribunal. The section is a bar to everyone claiming under a will, whether as plaintiff or defendant, if no probate or Letters of Administration is granted. The effect of Section 213(2) of the Act is that the requirement of probate or other representation mentioned in sub-section (1) for the purpose of establishing the right as an executor or legatee in a court is made inapplicable in case of a will made by Muhammadans and in the case of wills coming under Section 57(c) of the Act. Section 57(c) of the Act applies to all wills and codicils made by any Hindu, Buddhist, Sikh or Jain, on or after the first day of January, 1927 which does not relate to immovable property situate within the territory formerly subject to the Lieutenant-Governor of Bengal or within the local limits of the ordinary civil jurisdiction of the High Courts of Judicature at Madras and Bombay, or in respect of property within those territories. No probate is necessary in the case of wills by Muhammadans. Now by the Indian Succession [Amendment] Act, 1962, the section has been made applicable to wills made by Parsi dying after the commencement of the 1962 Act. A combined reading of Sections 213 and 57 of the Act would show that where the parties to the will are Hindus or the properties in dispute are not in territories falling under Section 57(a) and (b), sub section (2) of Section 213 of the Act applies and sub-section (1) has no application. As a consequence, a probate will not be required to be obtained by a Hindu in respect of a will made outside those territories or regarding the immovable properties situate outside those territories….”
3. In this connection, the Hon’ble Allahabad High Court decision reported in 2017 (11) ADJ 628 (Usha Devi vs. Anita) is also relevant in which it has been observed - Considering Sections 213 and 57 of Act, 1925 in Nobat Ram v. Gayatri Devi, 1968 ALJ 69, Court held that there is no requirement of probate in respect to a 'Will' covered by Section 57(C) of Act, 1925.; Similar View was taken in Pitmo v. Syam Singh, AIR 1978 All 301 and Bhaiya Ji v. Jageshwar Dayal Bajpai, AIR 1978 All 268.
Summary of Question- Calculation of 3 months as to validity of cheque for section 138 NI Act
Question – Whether the date on which cheque was drawn is to be excluded in computing 3 months.
The Hon’ble supreme Court decision in a case reported in 2014 (11) SCC 759 as under:
“Drawing a conclusion from the above mentioned authorities, we are of the opinion that the use of word "from" in Section 138(a) requires exclusion of the first day on which the cheque was drawn and inclusion of the last day within which such act needs to be done. In other words, six months would expire one day prior to the date in the corresponding month and in case no such day falls, the last day of the immediate previous month. Hence, for all purposes, the date on which the cheque was drawn, i.e., 31.12.2005 will be excluded and the period of six months will be reckoned from the next day i.e. from 1.1.2006; meaning thereby that according to the British calendar, the period of six months will expire at the end of the 30th day of June, 2006.”
Summary of Question- Loss of mortgaged Title Deed by Bank
Question – Whether Bank is liable to pay compensation if Title Deed, which has been equitably mortgaged to the Bank , is lost by the Bank.
1. There is a decision of the Hon’ble national commission in the case reported in III (2017) CPJ 156 (NC) in which the National Commission referred to its earlier decisions and held the Bank liable for compensation to the consumer complainant. SLP preferred to the Hon'ble Supreme Court against the order of the National commission was dismissed with cost vide order dated 08.01.2018 in SPECIAL LEAVE PETITION CIVIL Diary Nos. 38358/2017
2. Short facts of the case was that the complainant (respondent before NC) availed a loan from the Bank ( Mayyanadu Regional Cooperative Bank) by mortgaging his original title deed with the Bank. The complainant repaid his loan, but the Bank did not return the original title deed. The Bank orally informed him in the year 1999 that the original deed was missing, and Bank was on search to recover the same. The loan was, however, finally closed on 08.09.2012 . The Bank then informed the complainant that the title deed was lost, when the Bank shifted their building premises. The complainant stated that the property was valued at about 75 lakhs and due to lack of original document, the complainant was unable to sell the property to the third parties. Alleging deficiency in service on the part of the OP Bank, the consumer complaint was filed, seeking compensation of 25 lakhs from the Bank for deficiency in service/unfair trade practices etc.
3. Kerala State Consumer Disputes Redressal Commission directed the bank to return the original sale deed to the complainant within one month, failing which to provide compensation of 10 lakh with interest @ 12% p.a. from the date of petition till realisation.
4. The Hon’ble National Commission observed and held as under
“ The matter has been duly examined in a number of cases recently decided by the Commission. In FA No. 226/2016, Bank of India vs. Mustafa Ibrahim Nadiadwala', decided on 30.11.2016, the orders earlier passed by this Commission in RP No. 3800/2014, "Indian Overseas Bank, Hyderabad vs. K. Bal Reddy & Ors., decided on 15.10.2014 and "C.L. Khanna vs. Dena Bank IV (2005) CPJ (NC)]", were discussed in detail. It was held that the Bank was liable to pay compensation to the complainant, because the value of the property was bound to be affected, if the original title deed had been lost.
In the above case, the complainant was held to be entitled to a sum of 5 lakh as compensation from the Bank for loss of title deed, alongwith a sum of 10,000/- as cost of litigation. In another case FA No. 624/2012 decided on 08.12.2016, "LIC Housing Finance Company Ltd. vs. Rajeev Kumar Jain" also, the appellant LIC Housing Finance Company was directed to pay a compensation of 5 lakh to the complainant for the loss of the title deed. In this case also, the earlier orders passed in "C.L. Khanna vs. Dena Bank (supra)" and "Indian Overseas Bank, Hyderabad vs. K. Bal Reddy & Ors." were discussed.
In view of all these orders, the matter in the present case is no more res-integra. The loss of the title deed has been fully established from the material on record. It is felt, however, that the compensation of 10 lakh alongwith interest @ 12% p.a. allowed by the State Commission is on the higher side. Keeping in view the orders passed by this Commission in, "Bank of India vs. Mustafa Ibrahim Nadiadwala" (supra), and "LIC Housing Finance Company Ltd. vs. Rajeev Kumar Jain" (supra), it is ordered that the OP/appellant shall be liable to pay a sum of 5 lakh to the complainant for the loss of the title deed alongwith 10,000/- as cost of litigation. The said amount shall be payable within four weeks of passing this order, failing which the Bank shall be liable to pay interest @ 12% p.a. for the period of delay in making the said payment. This First Appeal stands disposed off accordingly.”
[Emphasis Supplied ]