Moot Memorial on Banking Law, Study Guides, Projects, Research of Banking Law and Practice

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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.

1. 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.

2. 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.
3. 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.