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MOOT MEMORIAL
NAME: SABA. I. SAYYED
CLASS: 5TH^ YEAR
COURSE: BBA-LLB
PRN NO: 1092180009
SUBMITTED TO: PROF. CHIRAG. DAVE
ON BEHALF OF THE PETITIONER
MIT-WPU MOOT (COMPANY LAW)
BEFORE
THE HON’BLE HIGH COURT
IN THE YEAR 2023
IN THE MATTER OF:
ABC Limited & Directors. ....PETITIONER
Vs
XYZ Enterprise Ltd &
State of Maharashtra. .…RESPONDENT
SUBMISSION TO THE HON’BLE HIGH COURT
TABLE OF ABBREVIATIONS
ABBREVIATION FULL FORM
¶ PARAGRAPH
& AND
AIR ALL INDIA REPORTER
ART. ARTICLE
HON’BLE HONOURABLE
NO. NUMBER
ORS. OTHERS
P. PAGE
PT. POINT
INDEX OF AUTHORITIES
CASES
Somnath vs. Mukesh Kumar,
Nitin Chadha vs. M/s Swastik Vegetable Products Pvt. Ltd. & Anr.,
Nitinbhai Saevatilal Shah and another vs. Manubhai Manjibhai Panchal and
another,
Krishna janardhan bhat vs. dattatraya G. Hedge
Ravi Kumar Jain Vs. Vinod Kumar Jain
BOOKS
Constitution Of India
Negotiable Instrument Act, 1881
SARFESI Act, 2002
Code of Criminal Procedure, 1872.
REFERENCES
https://districts.ecourts.gov.in/sites/default/files/study%20circles.pdf
https://indiankanoon.org/doc/595945/
STATEMENT OF FACTS:
The Applicant No.1 namely ABC Limited, is a Company incorporated and registered under the provisions of the Companies Act, 1956 and the Applicant Nos. 2 to 4 are the Directors of the Applicant No.1 Company and are respectable and law abiding citizens. The Respondent No.1 namely XYZ Enterprise Limited is an Asset Reconstruction Company registered with the Reserve Bank of India under the provisions of the Securitization And Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the “SARFAESI Act” for the sake of convenience and brevity). The Respondent No.2 is the State of Maharashtra. A Complaint under the provisions of Section 138 r/w. 141 of the Negotiable Instruments Act, 1881 (as amended) was filed on 10.01.2017 by the Original Complainant namely ‘Lena bank’ against the Applicants (Accused therein before the Trial Court) abovenamed. On filing of the said complaint by Lena Bank, the Ld. Metropolitan Magistrate recorded the verification and issued process on 10.02.2017 against the present Applicants. The Respondent No.1 vide a Substitution Application dated 10.07.2017 sought/prayed to be substituted in place of the Original Complainant in view of the Assignment of Debt by the Original Complainant namely Lena Bank vide an Assignment Deed dated 01.04.2017 entered into between the Original Complainant and the Respondent No.1. The Respondent No.1 by preferring the Substitution Application contended before the Trial Court that the Original Complainant by virtue of signing and executing the Assignment Deed dated 01.04.2017 had transferred all its rights, title and interest in the
amount due and payable by the Applicants in relation to the Overdraft Agreement dated 30.12.2013 in favor of the Respondent No.1. The Respondent No.1 hence prayed that the Respondent No.1 be substituted in place of the Original Complainant i.e. Lena Bank so as to enable it to further proceed with the Complaint and prosecute the Applicants. The Applicants vide their reply dated 10.02.2018 opposed the Substitution Application preferred by the Respondent No.1 and had objected that the said Substitution Application should be rejected. The Applicants in their reply contended that the Respondent No.1 had no locus standi to prefer the Substitution Application as they were not a party to the complaint which was pending before the Trial Court, neither had the Applicant issued any cheque in the name of the Respondent No. 1. The Applicants also averred in their reply before the Trial Court that the Assignment Deed only entitles the Respondent No.1 to take over the assets and liabilities from Lena Bank giving them rights under the Civil Law, however, the same cannot be inferred and interpreted to allow the Respondent No.1 to prosecute them under the provisions of Section 138 r/w. 141 of the Negotiable Instruments Act, 1881. The Applicant also contended that since the mandatory provision of the Negotiable Instruments Act, 1881 of issuing a notice and filing the complaint was not complied with by the Respondent No. 1, they cannot prosecute the Applicants. However, after hearing the submissions advanced by Counsel appearing for the Applicants and the Respondent No.1, the learned Metropolitan Magistrate was pleased to allow the said Substitution application by observing that the Respondent No. 1 will have the right to continue to prosecute the Applicants under Section 302 of the Code of Criminal Procedure, 1973.
Payee or the Holder In Due Course. It is pertinent to mention here that the Respondent No.1 is neither the Payee nor the Holder In Due Course and thus cannot be substituted in the place of the Original Complainant. v. It was further argued that the Respondent No.1 cannot derive any right from Section 5(4) of the SARFAESI Act and has grossly erred in not considering that the term “other proceedings” mean only Civil Proceeding which have a bearing on the said Financial Asset. Hence the proceedings u/s. 138 of The Negotiable Instruments Act, 1881 (as amended) which are in the nature of Criminal Complaint cannot be included in the term “suit, appeal or other proceeding” as used in Section 5(4) of the SARFAESI Act, 2002. vi. It was further argued that the expression “other legal proceedings” has to be read ejusdem generis with the expression “SUIT”. Thus, the term other legal proceedings will include only civil proceedings of whatsoever nature.
- On the other hand it was argued by the counsel for the Respondents that: i. since all the Assets and Liabilities have been transferred from Lena Bank to the Respondent No.1’s account vide the Assignment Deed dated 01.04.2017 they will have the right to now prosecute the Applicants by virtue of the execution of the said Assignment Deed. ii. It was further argued on behalf of the Respondents that they fall within the definition of “Holder in Due Course” as defined in Section 9 of the Negotiable Instruments Act, 1881 (as amended) as they came in possession of the cheques issued by the Applicants by paying the consideration amount to Lena Bank. iii. It was also argued that the Respondents are entitled to be substituted in all the legal proceedings, whether civil or criminal, by virtue of Section 5(4) of the SARFESI Act and that the word “whatsoever nature” implies that it will also include criminal proceedings.
- After considering the arguments of both the sides the Hon’ble Sessions Court was pleased to reject the Criminal Revision Application and upheld the observations of the Learned Metropolitan Magistrate.
- The Applicants being once again aggrieved by the order of the Hon’ble Sessions Court have filed a Writ Petition before the Hon’ble High Court, which has been admitted and placed for final hearing.
SUMMARY OF ARGUMENTS
ISSUE 1: Whether a Complainant can be substituted under section 302 of the Code
of Criminal Procedure, 1872 in a Complaint which is filed for the offence under
section 138 r/w 141 of the NI Act, 1881?
It is humbly submitted on behalf of the Petitioners before this Hon’ble High Court that
section 302 does not allow such substitution and the provision of Negotiable Instrument
act did not allow the Complaint to be substituted under section 138 r/w 141 of the Act.
ISSUE 2: Whether the expression “other Legal Proceedings” used in Section 5(4) of
the SARFESI Act, 2002 will include a criminal proceeding?
It is humbly submitted on behalf of the Petitioners before this Hon’ble High Court that
the expression “other legal Proceedings” used in Section 5(4) of the SARFESI Act, 2002
will not include a criminal proceedings.
ISSUE 3: Whether the Respondent No.1 will fall within the purview of the
expression “Holder in Due Course”?
It is most humbly submitted on behalf of the Petitioners before this Hon’ble High Court
that Respondent No.1 will not fall within the purview of the expression “Holder in Due
Course”
ARGUMENTS ADVANCED
ISSUE 1: Whether a Complainant can be substituted under section 302 of the Code
of Criminal Procedure, 1872 in a Complaint which is filed for the offence under
section 138 r/w 141 of the NI Act, 1881?
It is humbly submitted on behalf of the Petitioners before this Hon’ble High Court that
section 302 does not allow such substitution and the provision of Negotiable Instrument
act did not allow the Complaint to be substituted under section 138 r/w 141 of the Act.
It also states that a complainant cannot be replaced under section 302 of the Code of
Criminal Procedure (Cr. P.C), 1872.
Section 302: Permission to conduct prosecution.
Any Magistrate inquiring into or trying a case may permit the prosecution to be
conducted by any person other than a police officer below the rank of Inspector; but
no person, other than the Advocate General or Government Advocate or a Public
Prosecutor or Assistant Public Prosecutor, shall be entitled to do so without such
permission: Provided that no police officer shall be permitted to conduct the
prosecution if he has taken part in the investigation into the offence with respect to
which the accused is being prosecuted.
Any person conducting the prosecution may do so personally or by a pleader.
138 Dishonour of cheque for insufficiency, etc., of funds in the account
Where any cheque drawn by a person on an account maintained by him with a banker for
payment of any amount of money to another person from out of that account for the
discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid,
either because of the amount of money standing to the credit of that account is insufficient
to honour the cheque or that it exceeds the amount arranged to be paid from that account
by an agreement made with that bank, such person shall be deemed to have committed an
offence and shall, without prejudice to any other provisions of this act.
141 Offences by companies
If the person committing an offence under section 138 is a company, every person who, at
the time the offence was committed, was in charge of, and 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
accordingly: Provided that nothing contained in this sub-section shall render any person
S.M. Surya v. M/s. New India Electric Works Pvt. Ltd. & Anr - In this case, the
Supreme Court held that the provisions of the Negotiable Instruments Act, 1881 are a
complete code in themselves and do not permit the substitution of a complainant under
Section 302 of the Code of Criminal Procedure, 1973.
Krishna Janardhan Bhat v. Dattatraya G. Hegde,- In this case, the Supreme Court
held that the complainant is a key party in the proceedings under Section 138 r/w 141 of
the Negotiable Instruments Act, 1881 and cannot be substituted under Section 302 of the
Code of Criminal Procedure, 1973.
Therefore, section 302 does not allow such substitution and the provision of Negotiable
Instrument act did not allow the Complaint to be substituted under section 138 r/w 141 of
the Act. It also states that a complainant cannot be replaced under section 302 of the
Code of Criminal Procedure (Cr. P.C), 1872.
ISSUE 2: Whether the expression “other Legal Proceedings” used in Section 5(4) of
the SARFESI Act, 2002 will include a criminal proceeding?
It is humbly submitted on behalf of the Petitioners before this Hon’ble High Court that
the expression “other legal Proceedings” used in Section 5(4) of the SARFESI Act, 2002
will not include a criminal proceedings.
Section 5 of SARFESI Act-Acquisition of rights or interest in financial assets.-
(4) If, on the date of acquisition of financial asset under sub-section (1), any suit, appeal
or other proceeding of whatever nature relating to the said financial asset is pending by
or against the bank or financial institution, save as provided in the third proviso to sub-
section (1) of section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985
the same shall not abate, or be discontinued or be, in any way, prejudicially affected by
reason of the acquisition of financial asset by the3[asset reconstruction company], as the
case may be, but the suit, appeal or other proceeding may be continued, prosecuted and
enforced by or against the [asset reconstruction company], as the case may be.
In the present case where the issue being whether the expression other legal proceedings
used in Section 5 (4) of SARFESI act 2002 will not include a criminal proceeding, as in
the case of State Bank of India v. Jah Developers Pvt. Ltd. - In this case, the Bombay
High Court held that criminal proceedings cannot be considered as "other legal
proceedings" under the SARFAESI Act, as the Act only contemplates civil proceedings.
Also in the case of IDBI Bank Ltd. v. Ruchi Soya Industries Ltd. - The National
Company Law Appellate Tribunal (NCLAT) held that criminal proceedings cannot be
considered as "other legal proceedings" under the SARFAESI Act, as the Act only
provides for enforcement of security interest in the secured assets.
According to the Black law Dictionary states that the phrase "proceedings" must be used
interchangeably with the word "Suit" to refer to the full course of the suit, from the
moment it is filed until the final verdict. It would be against the SARFAESI Act's overall
intent if the phrase "other legal processes" was not to be interpreted ejusdem generis with
the word "proceedings."
It has been noted and underlined in the decision of GSL (India) Ltd. v. Bayer Abs Ltd.
that "Suit" in the common sense only relates to civil proceedings. The verbatim further
states that in "Suit," "Appeal," or "Other legal proceedings," "Suit" is the prefix that
limits the nature of the word "Other legal proceedings" to Civil proceedings only in cases
where there is no prefix or prefix is the word that is used to limit the scope of a particular
provision. When the term has been used several times in the Act, the meaning will be
similar and has to be read in that way only. Section 5(4) of the SARFAESI Act when read
with Section 5(3) of the SARFAESI Act makes it clear that that word includes only civil
proceedings and not Criminal proceedings. It is so due to the whole Act rule.
Therefore, the Applicant submits that the term “Other legal proceedings” include only the
Civil proceedings. The intention of the Legislature was to read the terms “Other legal
proceedings” and “of whatsoever nature” ejusdem generis and hence, it will not include
Criminal proceedings.
which would be applicable to a company and its officers by virtue of Section 141 of the
said Act.
Hence there has been noncompliance with the provisions of Negotiable Instruments Act;
it has been held that only a payee or “Holder in Due Course” under sec 142 of the
Negotiable Instrument Act can file for a complaint; however this has not been done by
Respondent No.1 as it is mentioned under section 138 that a complaint needs to file
within one month but the same has not been file by Respondent No.1 and the importance
of this provision was upheld by the Supreme court, where the court has said that the
language used in section 142 means that the magistrate can take reasonable action on
cognizance of offence where the complaint was not filed within one month from the date
the cause of action arose.
According to section 8 and 9 of Negotiable instrument act we can prove that the
Respondent No.1 does not fall within the purview of the expression “Holder in due
Course.
Section 8 of Negotiable Instruments Act 1881: "Holder" The “holder" of a
promissory note, bill of exchange or cheque means any person entitled in his own name
to the possession thereof and to receive or recover the amount due thereon from the
parties thereto. Where the note, bill or cheque is lost or destroyed, its holder is the
person so entitled at the time of such loss or destruction.
In Smt. Asha Baldwa v. Ram Gopal This is one of the landmark judgments in Section
138. The petitioner had filed a petition under Section 482, Cr.P.C to quash the
proceedings instituted against him for committing an offence under section 138. He was
alleged to have handed over the dishonored cheque to the respondent. She consented to
such giving of the cheque. Hence, she is responsible for the consequences of giving the
cheque. The contention of the petitioner was that in accordance with Section 141(2) of
the Negotiable Instruments Act, 1881, the allegations can be made against the Company
only or its Partners or Directors only when the offence was committed with the consent
or connivance or, is attributable to, any neglect on the part of, any director, manager,
secretary or partners. The Court held that the aim is that the person who promises to pay
abides by his promise. Section 139 provides that it shall be presumed that the holder of a
cheque received the cheque of the nature referred to in Section 138 of NI Act for the
discharge, in whole or in part, of any debt or other liability.
If Respondent No.1 is declared as Holder in due course it will lead to over burdening of
the case on the side of the Petitioner and other asset Reconstruction company can further
make malicious misuse of this right and perhaps even create a monopoly over the bank.
PRAYER
In the light of issues raised, arguments advanced and authorities cited, the Petitioner
humbly and respectfully prays that the Hon’ble Court be pleased:
1) Hold that Respondent No.1 does not fall under the purview of expression Holder
in Due Course”.
2) Declare that the Complainant cannot substituted under section 302 of the Code of
Criminal Procedure, 1872 in a Complaint which is filed for the offence under
section 138 r/w 141 of the NI Act, 1881.
3) Declare that the expression “other Legal Proceedings” used in Section 5(4) of the
SARFESI Act, 2002 will not include a criminal proceeding and
4) To grant any other relief which the Hon’ble court may deem fit in the eyes of
justice, equity and good conscience.
All of which is respectfully submitted and for such act of kindness the Respondent shall
be duty bound and forever pray.