Sri P.C. Singhvi vs Marlecha Securities (P) Ltd., Stock and Share Brokers <BR> Marlecha Securities (P) Ltd., Stock and Share Brokers Vs Mr. P.C. Singhvi

K.N. Keshavanarayana, J.—As parties to these two petitions are one and the same and since it relates to one and the same proceedings initiated in C.C. No. 7997/2003 on the file of XV Additional C.M.M., Bangalore, and since common questions of fact and law arises for consideration in these two petitions, they were heard together and are being disposed of by this common order.

Facts leading to the presentation to these two petitions u/s 482 of Cr.P.C. are as under:

There were certain transactions relating to stocks and shares between M/s. Marlecha Securities (P) Ltd., and Sri. P.C. Singhvi, son of Sri. Parasmal Singhvi. As certain dispute arose between them, the said dispute was referred to an Arbitral Tribunal. After enquiry, the Arbitral Tribunal passed an award dated 17.5.2002 holding that P.C. Singhvi, the respondent in the arbitration case is liable to pay a sum of Rs. 2,00,000/-with interest at 12% per annum from 6.9.2001 up to the date of payment. As the said award had the force of a decree of the civil court as per the provisions of Arbitration and Conciliation Act, 1996 (for short the Act), on 12.8.2002, the decree holder filed Execution Case No. 1762/2002 on the file of the City Civil Judge at Bangalore to execute the award claiming Rs. 2,23,000/-inclusive of interest On 17.8.2002, the executing court directed issue of warrant for attachment of movables belonging to the Judgment Debtor P.C. Singhvi, by dispensing with issue of cause notice, since the Execution Petition had been filed within the period of two years from the date of the award. In the meanwhile, the Judgment Debtor P.C. Singhvi filed Petition u/s 34 of the Act, seeking to set aside the award dated 17.5.2002, which came to be registered as Arbitration Suit No. 52/2002. It appears on 8.10.2002, the warrant of attachment was sought to be executed, and at that time, the Judgment Debtor. P.C. Singhvi, issued post dated cheque dated 17.10.2002 for Rs. 2,23,000/- in favour of the Decree Holder. In the light of the issuance of the said cheque, warrant was returned unexecuted. After coming to know of the issuance of warrant in the Execution Petition, the judgment Debtor P.C. Singhvi, filed application in the Execution Petition on 9.10.2002, seeking, to advance the said case and bringing to the notice of the executing court about the filing of petition u/s 34 of the Act. On 10.10.2002, in Arbitration Suit No. 52/2002 order of interim stay came to be passed by the VI Additional City Civil Judge, Bangalore, staying the operation of the award dated 17.5.2002, subject to the condition that the petitioner therein namely, P.C. Singhvi, should deposit 50% of the award amount. On 11.10.2002, the executing court after hearing the learned Counsel appealing for the Decree Holder and the Judgment Debtor, passed an order directing the Decree Holder, not to encash the cheque issued by the Judgment Debtor till 19.10.2002. There was no further order with regard to the encashment of the said cheque. Therefore, since there was no prohibition for the Decree Holder to get the cheque encashed, the cheque was presented for encashment on 18.3.2003. However, the said cheque came to be dishonoured with a banker''s endorsement ''insufficient funds''. Thereafter, the Decree Holder M/s. Marlecha Securities (P) Ltd., caused a legal notice served on P.C. Singhvi, informing him about the dishonour of the cheque and called upon him to pay the amount covered under the cheque. However, in spite of service of notice, there was no compliance of the demands made therein within the statutory period allowed under law. Therefore, M/s. Marlecha Securities (P) Ltd., filed private complaint u/s 200 of Cr.P.C. r/w 142 of the Negotiable Instruments Act, 1881 (for short the N.I. Act) in P.C.R. No. 6486/2003 alleging offence punishable u/s 138 of the N.I. Act.

The learned Magistrate, before whom the complaint was presented, took cognizance for alleged offence and directed registration of the criminal case. Consequently, C.C. No. 7997/2003 came to be registered and summons were issued to the accused. P.C. Singhvi, upon service of summons, appeared before the learned Magistrate, obtained bail and pleaded not guilty for the accusation made against him.

In the meanwhile, he presented Petition u/s 482 of Cr.P.C. in Criminal Petition No. 922/2006, seeking to quash the criminal proceedings initiated against him on the basis of the private complaint for offence punishable u/s 138 of the N.I. Act inter alia contending that the learned Magistrate was not justified in taking cognizance of the offence alleged, in view of the fact that the cheque in question had not been issued for discharge of legally enforceable debt as on the date of the cheque and therefore, no offence u/s 138 of the N.I. Act has been committed by him. In the Criminal Petition No. 922/2006, this Court by order dated 24.2.2006 stayed further proceedings before the Criminal Court for a period of four weeks and the said interim order was subsequently extended from time to time. Though, the further proceedings in the criminal case had been stayed by this Court, the learned Magistrate, proceeded to dismiss the complaint for non-prosecution on 29.4.2006 on the ground that the complainant has failed to lead evidence in the case.

Being aggrieved by the dismissal of the complaint for non-prosecution and consequently acquitting the accused in terms of Section 256(1) of Cr.P.C., the complainant has presented Criminal Petition No. 3119/2006, inter alia contending that the order passed by the learned Magistrate, dismissing the complaint for non-prosecution, is illegal and contrary to the order of stay granted by this Court.

I have heard Sri. K.G. Sadashivaiah, learned Counsel appearing for P.C. Singhvi, petitioner in Criminal Petition No. 922/2006 and Sri. G.M. Paramasiviah, learned Counsel for the complainant M/s. Marlecha Securities (P) Ltd., petitioner in Criminal Petition No. 3119/2006. Perused the records.

The undisputed facts of the case are that, under an arbitration award passed on 17.5.2002 the accused was directed to pay Rs. 2,00,000/- to the complainant with interest and to enforce the said award, the complainant filed the Execution Petition on 12.8.2002; that in the said Execution Petition, warrant of attachment of movables of the accused was issued and when said warrant was sought to be executed, the accused issued the cheque in question for Rs. 2,23,000/-. The said cheque came to be dishonored when presented for encashment and thereafter, notice as required by law was served on the accused and as there was no compliance, the complainant lodged a complaint for offence punishable u/s 138 of the N.I. Act, based on which, the learned Magistrate took cognizance of the offence and issued summons to the accused. On 22.8.2002, the accused filed petition u/s 34 of the Act, in A.S. No. 52/2002 on the file of the City Civil Court, Bangalore, seeking to set aside the arbitration award and in the said petition, there was a conditional order dated 10.10.2002, directing the accused to deposit 50% of the award amount. Now the question is, ''whether the criminal proceedings lodged against the accused for offence punishable u/s 138 of the N.I. Act is liable to be quashed?''. Of course, as on today, no criminal proceedings are pending since the complaint itself has been dismissed for non-prosecution. However, since the complainant has sought for setting aside the said order of dismissal and for restoration of the said complaint, the above question required to be considered if the order dismissing the complaint for non-prosecution is found not sustainable.

As noticed earlier, in Criminal Petition No. 922/2006, this Court on 24.2.2006, granted an order of stay of all further proceedings before the criminal court for a period of four weeks, which was extended from time to time. The said order of stay was communicated to the court below. As could be seen from the certified copy of the order sheet in C.C. No. 7997/2003, it is noticed that on 7.4.2006, a copy of the stay order passed in Criminal Petition No. 922/2006 has been received by the criminal court and the same has been noted in the order sheet. Therefore, the learned Magistrate could not have proceeded to dismiss the complaint for non-prosecution on 29.4.2006. The order of dismissal of complaint is in violation of the order of stay granted by this Court and therefore, the said order is illegal and cannot be sustained. Therefore, the petition filed by the complainant for setting aside the order of dismissal and for restoration of the complaint deserves to be allowed.

As noticed earlier the cheque in question was issued to the complainant on 8.10.2002 by mentioning the date of the cheque as 17.10.2002 when warrant of attachment of movables issued in the execution petition was sought to be executed. From this, it is clear that the cheque in question was issued for satisfying the amount claimed in the Execution Petition. Therefore, the question, whether as on that date, the said decree was enforceable or not and the cheque in question could be construed as the cheque issued for discharge of a legally enforceable or recoverable debt?, requires to be considered.

For constituting offence u/s 138 of the Act, cheque must have been drawn by a person on an account maintained by him with a banker for payment of any amount of money from out of the said account for the discharge in whole or in part of any debt or other liability.

In catena of decisions the Apex Court has held that the expression "debt or other liability" Occurring u/s 138 of the Act should be construed as legally enforceable or recoverable debt or liability. Therefore, what is required to be noticed is as to, ''whether as on 8.10.2002, the award was enforceable? ''

As noticed earlier, the accused filed Petition u/s 34 of the Act on 22.8.2002. Section 36 of the Act deals with enforcement of the award. As per this Section, an award can be enforced only if an application u/s 34 of the Act for setting aside the arbitral award has not been made within the period prescribed u/s 34 of the Act or if such application have been filed, the same has been refused. In other words, as a corollary, if a petition u/s 34 of the Act for setting aside the arbitral award is tiled within the prescribed period allowed under the said Section, the award automatically become unenforceable till the disposal of such application. Moment such application is filed, it acts as automatic stay of the award and the award becomes unenforceable.

The Hon''ble Supreme Court in the case of National Aluminium Co. Ltd. Vs. Pressteel and Fabrications Pvt. Ltd. and Another, has held thus,

At one point of time considering the award as a money decree, we were inclined to direct the party to deposit the awarded amount in the court below so that the applicant can withdraw it, on such terms and conditions as the said court might permit it to do as an interim measure. But then we noticed from the mandatory language of Section 34 (Section 36) of the 1996 Act, that an award, when challenged u/s 34 within the time stipulated there, become unexecutable. There is no discretion left with the court to pass any interlocutory order in regard to the said award except to adjudicate on the correctness of the claim made by the applicant therein Therefore, that being the legislative intent, any direction from us contrary to that, also becomes impermissible. On facts of the case there being no exceptional situation which would compel us to ignore such statutory provision, and to use our jurisdiction under Article 142, we restrain ourselves from passing any such order, as prayed for by the applicant.

This view has been reiterated again by the Apex Court in National Buildings Construction Corporation Limited v. Lloyds Insulation India Ltd. (2005) 2 SCC 367.

In the light of the above well settled principle of law and provisions of Section 36 of the Act, moment the accused filed petition u/s 34 of the Act on 22.8.2002, the award became unenforceable and there was an automatic stay of the execution of the award. Of course, the award was passed on 17.5.2002 while the petition was filed on 22.8 2002. However, the learned Counsel for the complainant fairly submitted that in the petition filed u/s 34 of the Act, the accused herein has averred that copy of the award was received by him on 23.5.2002 and therefore, the petition filed on 22.8.2002 was within the time allowed under subsection (3) of Section 34 of the Act.

In view of the automatic stay of the award on account of filing of the petition u/s 34 of the Act on 22.8.2002, warrant of attachment, could not have been issued nor executed on 8.10.2002. Prom this, it is clear that on the day when the cheque in question came to be issued by the accused in favour of the complainant, debt was not enforceable. Therefore, the cheque issued cannot be considered as the one issued for discharge of legally enforceable or recoverable debt as a result, the offence u/s 138 of the N.I. Act was not made out. Therefore, the learned Magistrate could not have taken cognizance of the offence alleged. It is well settled law that upon taking of cognizance of the offence, the criminal proceedings gets commenced. If the order taking cognizance of the offence itself is not in accordance with law, all further proceedings gets vitiated In view of the admitted facts, no purpose would be served by directing the accused to participate in the proceedings to take the same to its logical conclusion. Having regard to facts and circumstances of the case, I am of the considered opinion that the criminal proceedings launched against the accused for the offence punishable u/s 138 of the Act on the basis of the cheque issued by him, cannot be allowed to be continued. Continuance of such proceedings would certainty be an abuse of process of the court Therefore, it is just and necessary for this Court to quash the proceedings in exercise of the power u/s 482 Cr.P.C.

Before parting with the case, it is necessary to note that whenever an arbitral award is sought to be executed before the civil court, it is the duty of the Executing Court, before proceeding to enforce the award, to find out as to whether a petition u/s 34 of the Act has been filed within the time stipulated under Sub-section (3) of Section 34 of the Act as presentation of such petition within the time allowed under the law would act as an automatic stay of enforcement of the award in terms of Section 36 of the Act. If such a step is not taken, as happened in this case, the Executing court would proceed to take further steps to enforce the award in which event it would run contrary to the provisions of Section 36 of the Act. The learned Counsel for the complainant expresses apprehension that the observation made in the course of this order may be used by the accused in the appeal pending before this Court against the final order passed in AS.No.52/2002 dismissing the said petition.

I find no basis for such apprehension. However, it is made clear that the observation made during the course of this judgment is only for the purpose of finding out as to whether the criminal prosecution launched against the accused for offence punishable u/s 138 of the N.I. Act deserves to be quashed or not it shall not have any bearing on the appeal filed against the dismissal of AS. No. 52/2002.

In view of the above discussion, Criminal Petition No. 3119/2006 and Criminal Petition No. 922/2006 are allowed. The order of the XXI Additional CMM., Bangalore City, dated 29.04.2006 passed in C.C. No. 7997/2003 dismissing the complaint for non-prosecution, is set aside and the criminal prosecution launched against the petitioner in C.C. No. 7997/2003 on the file of the XXI Additional CMM., Bangalore City is hereby quashed.