Monthly Archives: August 2019

Dishonour of Cheque – Company to be Arraigned As Accused

In N. Harihara Krishnan v. J. Thomas [N. Harihara Krishnan v. J. Thomas, (2018) 13 SCC 663 adverting to the ingredients of Section 138 of the Negotiable Instruments Act, the Hon’ble Apex Court observed as follows:

“Obviously such complaints must contain the factual allegations constituting each of the ingredients of the offence under Section 138. Those ingredients are: (1) that a person drew a cheque on an account maintained by him with the banker; (2) that such a cheque when presented to the bank is returned by the bank unpaid; (3) that such a cheque was presented to the bank within a period of six months from the date it was drawn or within the period of its validity whichever is earlier; (4) that the payee demanded in writing from the drawer of the cheque the payment of the amount of money due under the cheque to payee; and (5) such a notice of payment is made within a period of 30 days from the date of the receipt of the information by the payee from the bank regarding the return of the cheque as unpaid.”

The provisions of Section 141 postulate that if the person committing an offence under Section 138 is a company, every person, who at the time when the offence was committed was in charge of or was responsible to the company for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished.

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. Himanshu v. B. Shivamurthy, (2019) 3 SCC 797.

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Filed under Company to be Arraigned, Dishonour of Cheque

Market Value – Burden to Prove

In Ratna Shankar Dwivedi v. State of U.P., 2012 (116) RD 17 it was held as under:

            “The term ‘market value’ has not been defined under the Act. However there are some precedents laying down certain guidelines as to how and in what manner a market value would be determined. The consensus opinion is that the market value of any property is the price which the property would fetch or would have fetched if sold, in the open market, if sold by a willing seller, unaffected by the special need of a particular purchaser. It is interesting to note that the Act provides first for determination of minimum value of the property and further says that if the market value of the property set forth in the instrument is less than the minimum value determined under the Act, in such case before registering the instrument the registering authority shall refer the instrument to Collector for determination of market value of the property and the proper duty payable thereon and when the Collector determines market value of the property thereafter the parties shall proceed accordingly. Therefore, a market value of the property in all cases cannot be said to be higher than the alleged minimum value determined under the rule by the concerned authority, in as much as, it is only a kind of guideline provided to the authorities for the purpose of considering as to whether the proper stamp duty is being paid by setting forth true market value of the property in question in the instrument. The various provisions with respect to minimum value etc. are only in aid and assistance of the authorities to find out true amount of consideration on which the parties have entered into transaction so that the correct duty is collected therefrom.”

It has also been repeatedly held that once a document is registered and stamp duty is paid, burden to prove that the value mentioned in the instrument was less than the market value is upon Collector. Ganga Dhar Gupta v. CCRA, 2019 (4) AWC 3587.

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Filed under Market Value, Stamp Act

Interim Mandatory Injunction

In Dorab Cawasji Warden v. Coomi Sorab Warden, (1990) 2 SCC 117, it was held as under:

        “The relief of interlocutory mandatory injunctions are thus granted generally to preserve or restore the status quo of the last non-contested status which preceded the pending controversy until the final hearing when full relief may be granted or to compel the undoing of those acts that have been illegally done or to the restoration of that which was wrongfully taken from the party complaining. But since the granting of such an injunction to a party who fails or would fail to establish his right at the trial may cause great injustice or irreparable harm to the party against whom it was granted or alternatively not granting of it to a party who succeeds or would succeed may equally cause great injustice or irreparable harm, courts have evolved certain guidelines. These guidelines are:

  • The plaintiff has a strong case for trial. That is, it shall be of a higher standard than a prima facie case that is normally required for a prohibitory injunction.
  • It is necessary to prevent irreparable or serious injury which normally cannot be compensated in terms of money.
  • The balance of convenience is in favour of the one seeking such relief.

Being essentially an equitable relief the grant or refusal of an interlocutory mandatory injunction shall ultimately rest in the sound judicial discretion of the court to be exercised in the light of the facts and circumstances in each case. Though the above guidelines are neither exhaustive nor complete or absolute rules, and there may be exceptional circumstances needing action, applying them as prerequisite for the grant or refusal of such injunctions would be a sound exercise of a judicial discretion.”

It is well established that an interim mandatory injunction is not a remedy that is easily granted. It is an order that is passed only in circumstances which are clear and the prima facie material clearly justify a finding that the status quo has been altered by one of the parties to the litigation and the interests of justice demanded that the status quo ante be restored by way of an interim mandatory injunction. Samir Narain Bhojwani v. Aurora Properties and Investments, (2018) 17 SCC 203.

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Filed under Civil Law, Interim Mandatory Injunction

Insolvency Code – Cannot be Used Prematurely

Operational Creditors cannot use the Insolvency Code either prematurely or for extraneous considerations or as a substitute for debt enforcement procedures. The alarming result of an operational debt contained in an arbitral award for a small amount of say, two lakhs of rupees, cannot possibly jeopardize an otherwise solvent company worth several crores of rupees. Such a company would be well within its rights to state that it is challenging the arbitral award passed against it, and the mere factum of challenge would be sufficient to state that it disputes the award. Such a case would clearly come within para 38 of Mobilox Innovations (P) Ltd. V. Kirusa Software (P) Ltd., (2018) 1 SCC 353 being a case of a pre-existing ongoing dispute between the parties. The Code cannot be used in terrorem to extract this sum of money of Rupees Two Lakhs even though it may not be finally payable as adjudication proceedings in respect thereto are still pending. K. Kishan v. Vijay Nirman Company Private Ltd., (2018) 17 SCC 662.

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Filed under Insolvency and Bankruptcy Code, Premature Use

Informant – Cannot be the Investigator

In a criminal prosecution, there is an obligation cast on the investigator not only to be fair, judicious and just during investigation, but also that the investigation on the very face of it must appear to be so, eschewing any conduct or impression which may give rise to a real and genuine apprehension in the mind of an accused and not mere fanciful, that the investigation was not fair. In the circumstances, if an informant police official in a criminal prosecution, especially when carrying a reverse burden of proof, makes the allegations, is himself asked to investigate, serious doubts will naturally arise with regard to his fairness and impartiality. It is not necessary that bias must actually be proved. It would be illogical to presume and contrary to normal human conduct, that he would himself at the end of the investigation submit a closure report to conclude false implication with all its attendant consequences for the complainant himself. The result of the investigation would therefore be a foregone conclusion. Mohan Lal  v. State of Punjab, (2018) 17 SCC 627.

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Filed under Criminal Investigation, Criminal Law

Exercise of Discretion by Selection Committee – In Matter of Recruitment

Law is settled that exercise of discretion by the selection committee, in the matter of recruitment, is not required to be interfered with by the Courts, unless it is found contrary to the rules or is otherwise arbitrary or suffers from malafide. The Hon’ble Apex Court in Union Public Service Commission v. M. Sathiya Priya, (2018) 15 SCC 796, has observed as under:

“This Court has repeatedly observed and concluded that the recommendations of the Selection Committee cannot be challenged except on the ground of mala fides or serious violation of the statutory rules. The Courts cannot sit as an appellate authority or an umpire to examine the recommendations of the Selection Committee like a Court of Appeal. This discretion has been given to the Selection Committee only, and the Courts rarely sits as a Court of Appeal to examine the selection of a candidate; nor is it the business of the Court to examine each candidate and record its opinion. Since the Selection Committee constituted by the UPSC is manned by experts in the field, we have to trust their assessment unless it is actuated with malice or bristles with mala fides or arbitrariness.” Lokendra Kumar Tiwari v. Union of India, 2019 (2) ESC 712.

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Filed under Employment Law, Exercise of Discretion by Selection Committee

Surrogate Advertisements – Meaning of

“Surrogate” has been defined in Wharton’s Law Lexicon Dictionary, Seventeenth Edition, 2018 at page 1824:

        “One that is substituted or appointed in the room of another, as by a bishop, chancellor, Judge etc., especially an officer appointed t o dispense licences to marry without banns;

        A substitute: especially, a person appointed to act in place of another.”

        P. Ramanatha Aiyar’s The Law Lexicon, Fourth Edition 2017 at page 1862 defines the word ‘Surrogate’:

        “Is one that is substituted or appointed in the room of another; as by a Bishop, Chancellor, Judge etc.

        A person or thing acting in place of another.”

        ‘Surrogate’ has been defined in Stroud’s Judicial Dictionary of Words and Phrases, Eighth Edition at page 2904:

        “Is he who is appointed in the stead of another, most commonly of a bishop or his chancellor.”

            The Concise Oxford Dictionary of Current English, Eighth Edition 1990 at page 1228 defines ‘surrogate’ as :

        “a substitute, especially, for a person in a specific role or office.”

        ‘Surrogate’ has been defined in Black’s Law Dictionary, Eighth Edition at page 1485:

        “A substitute especially, a person appointed to act in the place of another.”

        The above definitions broadly show that “Surrogate” means a “Substitute”. Surrogate Advertisements are like Advertisements which duplicate the brand image of one product to promote another product of same brand. ‘Surrogate’ or ‘Substitute’ could either resemble the original product or could be a different product altogether but it is marketed under the established brand name of original product. Surrogate advertisements are resorted by Product Owners to promote and advertise the products and brands when the original product cannot be advertised on mass media. Struggle Against Pain v. State of U.P., 2019 (3) AWC 2930.

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Filed under Commercial Law, Surrogate Advertisements

Benami Transaction – Determination of

In the case of Thakur Bhim Singh  v. Thakur Kan Singh, (1980) 3 SCC 72,  the Hon’ble Apex Court held as under:

“The principle governing the determination of the question whether a transfer is a benami transaction or not may be summed up thus: (1) the burden of showing that a transfer is a benami transaction lies on the person who asserts that it is such a transaction; (2) it is proved that the purchase money came from a person other than the person in whose favour the property is transferred, the purchase is prima facie assumed to be for the benefit of the person who supplied the purchase money, unless there is evidence to the contrary; (3) the true character of the transaction is governed by the intention of the person who has contributed the purchase money and (4) the question as to what his intention was has to be decided on the basis of the surrounding circumstances, the relationship of the parties, the motives governing their action in bringing about the transaction and their subsequent conduct, etc.”

In the case of P. Leelavathi  v.  Shankarnarayana Rao, (2019) 6 Scale 112,  the Hon’ble Apex Court held as under:

“ In Binapani Paul  v.  Pratima Ghosh, (2007) 6 SCC 100, the Hon’ble Court again had an occasion to consider the nature of benami transactions. After considering a catena of decisions of the Court on the point, the Court in that judgment observed and held that the source of money had never been the sole consideration. It is merely one of the relevant considerations but not determinative in character. It was ultimately concluded after considering its earlier judgment in the case of Valliammal v. Subramaniam (2004) 7 SCC 233 that while considering whether a particular transaction is benami in nature, the following six circumstances can be taken as a guide:

“(1) the source from which the purchase money came;

(2) the nature and possession of the property, after the purchase;

(3) motive, if any, for giving the transaction a benami colour;

(4) the position of the parties and the relationship, if any, between the claimant and the alleged benamidar;

(5) the custody of the title deeds after the sale; and

(6) the conduct of the parties concerned in dealing with the property after the sale. Mangathai Ammal (Died) through LRs  v. Rajeswari, 2019 (3) AWC 3009.

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Trade Union – Falls within the Definition of Person Under IBC

A trade union is certainly an entity established under a statute – namely, the Trade Unions Act and would therefore fall within the definition of “person” under Section 3(23) of the Insolvency and Bankruptcy Code. That being so, it is clear that an “operational debt”, meaning a claim in respect of employment, could certainly be made by a person duly authorized to make such claim on behalf of a worman. Rule 6, Form 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 also recognizes the fact that claims may be made not only in an individual capacity, but also conjointly. Further, a registered trade union recognized by Section 8 of the Trade Unions Act, makes it clear that it can sue and be sued by a body corporate under Section 13 of that Act. Equally, the general fund of the trade union, which inter alia is from collections from workmen who are its members, can certainly be spent on the conduct of disputes involving a member or members thereof or for the prosecution of a legal proceeding to which the trade union is a party, and which is undertaken for the purpose of protecting the rights arising out of the relation of its members with their employer, which would include wages and other sums due from the employer to workmen. J.K. Jute Mill Mazdoor Morcha v. Juggilal Kamlapat Jute Mills Co. Ltd., 2019 (4) AWC 3160.

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Filed under Insolvency and Bankruptcy Code, trade union