The Supreme Court has over-ruled its previous judgements in order provide relief to the holders of bounced cheques under the provisions of the Negotiable Instruments Act
It has been observed lately that the trend of reversing important judicial decisions has been on a rise i.e. a decision is reversed due to a difference in the opinion of the different benches presiding over matters pertaining to the same question of law and sharing the same background as to the facts of the case. Such a practise is being adopted more often by the Supreme Court, which being the highest court of law is regarded as the epitome for all legal issues. The practise of reversing a decision is considered appropriate and necessary only in the wake of adopting a dynamic approach towards law instigated by a constant change in the business dynamics and influenced by external factors.
To cite a recent example of such practise, reference shall be made to the case of Bhatia International Vs Bulk Trading SA1 (Bhatia International), the decision of the Supreme Court by virtue of which it was held that Part I of the Indian Arbitration and Conciliation Act (Arbitration Act), dealing with the power of a court to grant interim relief, could be applied to arbitration disputes with a foreign seat unless the parties specifically opted out of such an arrangement, was overruled by a subsequent decision of the court in Bharat Aluminium Co Vs Kaiser Aluminium Technical Services Inc2. In this landmark judgment, a constitutional bench of the Supreme Court held that Part I of the Arbitration Act will have no effect on international commercial arbitration held outside India unless it has been agreed that such awards shall be enforceable in India in accordance with the provisions contained in Part II of the Arbitration Act. Thus, in case of an international commercial arbitration, no application for interim relief will be maintainable as the application of Part I of the Arbitration Act is limited only to arbitrations taking place within India.
Such inconsistency should be discouraged in the course of imparting justice on substantial matters of law. Moreover, in a country where high reliance is placed on judicial precedents both by the citizens as well as the courts, difference in the opinion will prejudicially affect the rights of the parties directly involved, thus, consequentially acting to the detriment of the society and causing a significant decline in the faith held by the citizens on our judicial system.
SC over-rules prior decision: Assigns true intent to Section 138 of NI Act
The Supreme Court while deciding the scope of Section 138\142 of the Negotiable Instruments Act, 1881 (hereinafter referred to as ‘NI Act’), has over-ruled its previous decision thus importing true character to the intent of the legislature. Section 138 aims to promote better compliances in terms of honouring cheques and discharging liabilities by imposing a penalty for any default committed in this respect. It is a medium of speedy remedy provided for the protection of the holder/payee of the cheque, where the debtor seeks to discharge his obligation through cheque but does not intend to honour it.
However, the current practice adopted by the courts and the time spent to arrive at a final decision has inadvertently failed to meet the intent of the Legislature behind this provision and made it worthless in the statute books. The case to be dealt with subsequently is an apt example depicting the inability of the courts to provide speedy remedy as in this case, the aggrieved party had to strive for a period of ten years (approximately) before they could be accorded relief.
As per the proviso to the Section, there are three essential pre-requisites which are to be fulfilled for the application of this Section:
Further Section 142 of the NI Act requires the complaint to be made within one month of the date on which the “cause of action” arises under clause (c) of the proviso to Section 138 i.e. failure of the drawer to make payment within 15 days of receipt of notice by the holder/payee.
So, an essential question which arose for determination is when does a “cause of action” arise and whether a payee/holder can in due course initiate proceedings under Section 138 after a subsequent dishonour of cheque by the drawer if he has not initiated any action on earlier cause of action?
These questions have been a matter of debate in various rulings. The matter of Sadanandan Bhadran Vs Madhavan Sunil Kumar3(hereinafter referred to as ‘Sadanandan’s case’), decided by the apex court was a landmark judgment before it was over-ruled in Msr Leathers Vs Palaniappan and Anr.4(‘Msr Leathers’) by the Supreme Court itself.
The facts of both the cases being essentially the same are that the holder/payee had served notice under clause (b) of proviso to Section 138 on the first default by the drawer, yet did not file a complaint despite failure of the accused to make payment of the amount covered by the cheques, on assurance being given by the drawer that the cheques will be honoured on being presented again. However, even on subsequent presentation of the cheque for encashment by the holder/payee, the cheques were dishonoured again for want of insufficient funds. Notice was served by the payee and on failure of the drawer to pay the money; complaint was filed under Section 138.
In Sadanandan’s case5, the scope of Section 138\142 of the NI Act was given a limited meaning wherein the Supreme Court held that the “cause of action” under clause (c) of the proviso to Section 138 can arise only once and failure of the aggrieved holder/payee of the dishonoured cheque to file a complaint within 30 days of the first cause of action shall be treated as an absolution of his right. The apex court in this case adjudged that the subsequent presentation of cheques and the default committed thereby shall hold no relevance despite the fulfilment of all the preconditions stipulated for an offence to take place under Section 138 of the NI Act.
However, the recent judgment of the Supreme Court in Msr Leathers6 has brought out the essence of Section 138 of the NI Act, totally in sync with the intent of the legislature and the very object of Section 138, i.e. to impart credibility to negotiable instruments in business transactions and uphold the efficacy of and faith in the banking system. In the instant case, the question before the Supreme Court was similar to that in Sadanandan’s case (supra). The court negated its earlier ruling, observing the following:
“There is in our opinion no real or qualitative difference between a case where default is committed and prosecution immediately launched and another where the prosecution is deferred till the cheque presented again gets dishonoured for the second or successive time.” (emphasis supplied)
Therefore, based on the above observations, the Supreme Court upheld that the prosecution based upon second or successive dishonour of the cheque is also permissible so long as the same satisfies the requirements stipulated in the proviso to Section 138 of the Negotiable Instruments Act.
The landmark judgments of the Supreme Court over-ruling its previous decisions are inevitable in as much they have given effect to the true intention of the legislature by adopting a fair and just approach and fulfilling the purpose for which the statutes have been enacted that is to protect the interests of different classes of people. However, the frequent negation of earlier judgments is not a healthy approach and should be discouraged unless a substantial question of law is involved or it is mandatory to do so in the interests of promoting justice and equity.
1 (2002) 4 SCC 105
3 (1998) 6 SCC 514
Warning that the higher judiciary would be compelled to take drastic action of suspending the judicial officer if it continued to receive petitions, the Chief Justice of Madras HC pointed out to the recent case of Ramanathapuram District Judge, who was suspended on five counts, including corruption and sleeping during hearings
Chennai: Issuing a stern warning against corruption in judiciary, Madras High Court Chief Justice MY Eqbal on Thursday said 500 petitions against judicial officers were under the Court's scrutiny and anyone coming under a cloud should better quit, reports PTI.
In a candid talk while administering oath of office to the newly appointed civil judges, he said the common opinion of general public was not appreciative and Judicial officers are also equally blamed along with any other government servants.
"At present there are about 500 petitions under the scrutiny of High Court as against about 900 judicial officers working now. In all the complaints we are not taking drastic action of suspension or removal from service, but we will be keeping a watch of all the petitions received," he said.
Warning that the higher judiciary would be compelled to take drastic action of suspending the judicial officer if it continued to receive petitions, he pointed out to the recent case of Ramanathapuram District Judge, suspended on five counts, including corruption and sleeping during hearings.
"If we receive petitions continuously, then we will be compelled to take the drastic action of suspending the Judicial Officer, whether they are at the higher level in the cadre of District Judge or lower level in the cadre of Civil Judge Junior division," the Chief Justice said.
There were complaints about some judicial officers of the last batch which were being carefully scrutinised, he said.
Observing that judiciary is the last resort of an affected common man and every one looks upon a judicial officer with utmost respect and reverence, he said that respect and reverence must be kept up.
"If anybody raises a little finger against any judicial officer making allegation of corruption or favouritism, then it is better to quit the job and can resume practice again instead of continuing as judicial officer," he said.
"I have to say these harsh words because nowadays the common opinion of the general public is not appreciative.
Judicial officers also are equally blamed along with any other government servants," he said.
Minority shareholders are empowered under the Companies Act to force the management to correct its actions and/or reverse the transactions. Will institutional investors take the lead or sit like the three monkeys
‘Vadra-gate’ has not just rocked the Congress and its ruling ‘dynarchy’, but also the share price of real estate mogul, DLF. It has also eroded investors’ confidence in the company and its management. Since the disclosure of the sweet deals, a select section of media has targeted the First Family and raised the issue of corruption and nepotism. At the same time, an equally important issue has gone totally unnoticed—safeguarding the rights of minority shareholders of DLF.
Any retail investor—“mango people” in this “banana republic” as per First Son–in–Law of the nation—would just accept it as “the way this country works” and sell whatever shares he holds in DLF. Very few people, except for chartered accountants, company secretaries and lawyers would know that they have adequate rights to force the management to correct its actions and/or reverse the transactions.
Here, DLF has advanced interest-free loans to Robert Vadra’s companies. This is also evident from the financial statements filed by his companies with the Registrar of Companies (RoC). DLF has not yet confirmed whether these interest-free loans can be returned. According to Arvind Kejriwal’s first set of revelations, DLF sold properties to Vadra’s companies at deeply discounted rates. His second round of attack gave justification of the benefits accrued to DLF and its shareholders (including minority shareholders) for which Vadra was remunerated in form of interest-free loans and properties sold at a deep discount. However, DLF maintains that there are no convolute arrangements and transactions between DLF, the ruling Congress party in Haryana state and Vadra.
A shareholder is not at a loss if DLF is benefited by dealing through Vadra and compensating him for his services. However, if whatever DLF says—that it has not received any benefits from the ruling Congress government—is true, then it’s a bigger cause to worry. In that case, following issues arise:
In such situations minority investors have rights under a few provisions of Companies Act, 1956, to bring management down to discuss these issues and also propose resolutions to force corrective actions. Section 169 of Companies Act requires the board of directors of the company to call for an extraordinary general meeting (EGM) of the company on the requisition of shareholders of the company. Here the Companies Act stipulates that shareholders collectively holding 10% of total equity of the company must make this application. This requisition must mention matters which need to be considered in the meeting and submitted at registered office of the company.
If the board does not call for a meeting within 45 days from the date of the deposit of a valid requisition, the requisitionists themselves can call for an extraordinary general meeting. In case of failure of the board of directors to call for an extraordinary general meeting and hence requisitionists calling for the same, any reasonable expenses incurred by the requisitionists shall be repaid to the requisitionists by the company. The company has the right to retain expenses of such meetings from fees or other remuneration paid to the directors.
It may sound difficult and impractical to collect requisitions from thousands of minority shareholders of DLF who would collectively hold 10% of shares of the company. In such a case, a group of DLF investors can approach the National Company Law Tribunal and seek order from the Tribunal calling for an EGM, under Section 186 of the Companies Act. It is important for retail investors to know that this National Company Law Tribunal is very much like a civil court and has similar powers to issue orders and pass judgments, which have to be accepted by everyone.
In this case, as per the provisions of Section 186, the Tribunal either on its own motion or on the application by any shareholder of the company can pass an order calling for an EGM. The order shall also specify the manner in which the said meeting should be held.
As this story is being written there are no evidences that the National Company Law Tribunal has taken cognizance of these issues and has suo moto demanded an inquiry. It is yet to be seen how the National Company Law Tribunal takes action, if in case minority shareholders file a petition with the Tribunal, demanding an EGM to take corrective action to safeguard their interests.
However shady and difficult this DLF-Vadra issue may be, it has the potential of setting precedents and rules on corporate governance and igniting investor empowerment and shareholder activism in the country.
(Sumeet Mehta is a chartered accountant by qualification and managing director of
Paradigm Advisors—a boutique research and advisory firm.