Cognizance Of Section 138 NI Act Offence By Magistrate Will Not Automatically Result In Decree In Civil Suit For Cheque Dishonour : Delhi High Court

The Delhi High Court has held that if the Metropolitan Magistrate takes cognizance of an offense under Section 138 of the Negotiable Instrument Act, 1881, it is not that a decree against the respondent/defendant will follow automatically.

The Court rejected the argument that that mere cognizance of an offence by a MM in Section 138 NI Act proceedings should automatically lead to passing of a decree in a civil suit based on the very cheques

Rejecting the petitioner's argument, Justice Asha Menon noted that cognizance leads to a trial where the accused can also get acquitted. 

Factual Matrix

The petitioner had filed a summary suit for recovery under Order XXXVII of the Code of Civil Procedure, 1908. He was aggrieved with the trial court's order granting unconditional leave to defend to the respondent in the summary suit proceedings.

Advocate Vivek Kumar Tandon, the counsel for the petitioner, contended that proceedings under Section 138 of the Negotiable Instruments Act for the dishonor of cheques are still pending. Referring to an order by the Chief Metropolitan Magistrate, it was urged that as cognizance had been taken and notice under Section 251 Cr. P.C. served, a presumption had to be drawn against the respondent/defendant, and the suit ought to have been decreed under Order XXXVII CPC.

On the other hand, Advocate Sanchit Garg, counsel for the respondent, supported the leave to defend, arguing that the suit was replete with incorrect facts. 

Findings

Before the Court in the instant matter, the issue was whether the leave to defend had been rightly granted to the respondents. The Court noted that there were loan transactions between the petitioner and the respondent through bank transfer. The respondent had been paying interest for some time, after which it defaulted. This fact is reflected in the plaint itself, showing the existence of some business transactions. The Court noted,

"Though the petitioner/plaintiff has claimed now that those loan transactions were something different, that would be a matter to be seen during the trial. When the respondent/defendant has challenged the claim of the petitioner/plaintiff that he had acted as legal advisor to them and, therefore, the invoice raised was for a fee, this fact too will have to be proved. In fact, in the application for leave to defend, the respondent/defendant has averred that the petitioner/plaintiff had claimed to have been providing legal assistance to the respondent/defendant since the year 2000, yet the invoice had been raised only in December 2018, and therefore, the amounts raised in the invoice would also be time-barred."

The Court rejected the argument of the counsel that on taking of cognizance, a decree against the respondent will follow automatically. However, it noted that it is a matter of trial as to what was the respondent's liability arises towards the petitioner and towards which transaction or service rendered by the petitioner, that is, as a lender or as a legal advisor, would be entitled to the suit amount.

Upholding the trial court's decision, the High Court reiterated that the defense taken was not moonshine and disclosed triable issues that required inquiry. Therefore, leave to defend had to be granted in the light of these varying stands taken by the petitioner in different proceedings.

"With regard to the submissions made by the learned counsel for the  petitioner/plaintiff, that, on taking cognizance of an offence by the learned MM under Section 138 of the N.I. Act automatically a decree against the respondent/defendant should follow, cannot be accepted, as cognizance leads to trial and the accused can also get acquitted", the High Court said.

Title: Sarvesh Bisaria v. Anand Nirog Dham Hospital Pvt. Ltd. & Ors

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