Page 22 - Banking Finance April 2019

LEGAL UPDATE

A second notice in cheque case valid Supreme Courts speeds

If a cheque bounces for want of insufficient funds, the payee can present the up arbitration
cheque again to the bank. If it bounces again, the
drawer can send another notice as required under the The Supreme Court last week exer-
Negotiable Instruments Act. After the first notice, the cised its extraor-
latter notices would not become invalid the Supreme dinary constitu-
court ruled in its judgment in the case, Sicagen India tional power to
Ltd vs Mahindra. The Madras High Court had held a appoint a sole
contrary view. It had quashed the prosecution of the arbitrator as the
drawer on the ground that successive notices were not valid and the law pro- proceedings had
vided only for one notice. a long chequered
history. In this
The Supreme Court overruled it, stating that the law did not forbid the holder case, Rajasthan Small Industries Cor-
of the cheque to make a successive presentation and institute criminal com- poration vs Ganesh Containers Mov-
plaint based on the second or successive dishonor of the cheque on its presen- ers Syndicate, disputes arose over
tation. Taking a contrary view would defeat the purpose of the Act, which is to transit penalty imposed by the cor-
compel the drawers to honor their commitments made in the course of their poration on the contractor.
business or other affairs. The Supreme Court revived the prosecution of the
drawer of the cheque in the case. At the request of the contractor, an
IAS officer was appointed the arbi-
trator. But the proceedings did not
Failure to repay a loan is not a criminal offence unless progress satisfactorily and therefore,
there is fraudulent intent: SC the managing director of the corpo-
In a significant ruling, the Supreme Court has held that failure to repay a loan ration was appointed as arbitrator.
Still, there was no progress in the ar-
is not a criminal offence unless there is a fraudu-
lent intent. The ruling comes in the case of bitration. The corporation alleged
that the contractor was dragging
Satishchandra Ratanlal Shah versus the State of
proceedings. Ultimately, the high
Gujarat.
court appointed as arbitrator. Still,
"The mere inability of the appellant to return the there was no progress in the arbitra-
loan amount cannot give rise to a criminal pros- tion. The corporation alleged that
ecution for cheating unless fraudulent or dishonest intention is shown right at the contractor was dragging pro-
the beginning of the transaction, as it is this mens rea which is the crux of the ceedings.
offence," held a Bench comprising Justice NV Ramana and Justice Mohan M Ultimately, the high court appointed
Shantanagoudar. the new managing director of the
It further held that even if all the facts in the complaint and material are taken corporation as the sole arbitrator.
at their face value, no such dishonest representation or inducement could be The court did so exercising its pow-
found or inferred. The case pertains to an appeal against the impugned judg- ers under Article 142 of the Consti-
ment of the Gujarat High Court that had dismissed the appellant's application tution, which allows the court to do
for a quashing of the order framing charges in a criminal case. any act to achieve "complete jus-
tice". This phrase has "width and
The appellant had taken a loan of Rs. 27 lakh in January 2008 from the com-
elasticity" to meet myriad situations,
plainant, a director in a money lending firm, which he failed to repay. Following
the judgment asserted. In the case,
this, the complainant had alleged that he was threatened by the appellant when
the dispute was before different ar-
he approached him on the issue. He later filed a civil case, in 2011, to recover bitrators since 2009. Therefore, the
the money and followed it up with a criminal complaint and FIR in 2012. court felt it was justifiable to appoint
In its ruling, the apex court noted that the respondent knew the appellant and an arbitrator who will take up the
the circumstances before giving the loan. He had also filed a civil suit for recov- issues where others had left and give
ery of the money. an award expeditiously.

22 | 2019 | APRIL | BANKING FINANCE