Cognizance of offence u/s 138 of N.I. Act by magistrate does not automatically result in a decree against the respondent: Delhi High Court

By - Shriya Singh*

The Delhi High Court in a recent judgment held that merely because the Metropolitan Magistrate has taken cognizance of an offence under Section 138 of the Negotiable Instruments Act, 1881 (N.I. Act) does not mean that a decree against the respondent/defendant will follow. Furthermore, the Court noted that cognizance leads to a trial in which the accused may be acquitted.

The brief facts of the case are that the petitioner filed a summary suit for recovery under Order XXXVII of the Code of Civil Procedure, 1908 (CPC). The petitioner was aggrieved by the orders of the Trial Court for giving unquestioning leave to the respondent during the proceedings in the Trial Court. The petitioner then approached the Delhi High Court and filed the petition against two orders of the Trial Court.

The petitioner contended before the Delhi High Court that the proceeding concerning the dishonor of cheques is still pending under Section 138 of N.I. Act. As per the orders passed by the Chief Metropolitan Magistrate, it was argued that since cognizance had been taken and a notice under Section 251 Cr. P. C. was served, a presumption had to be exercised against the respondent and the claim must be brought under Order XXXVII CPC. Contrarily, the counsel of the respondent argued that the Trial Court is right in granting leave to defend the suit as it was replete with incorrect facts.

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The Court with regard to the leave to defend rightly granted to the respondent noted that there were loan transactions between the respondent and the petitioner through bank transfer. Also, the petitioner had been accepting interest paid by the respondent for some time after which it defaulted and it was reflected in the petition. 

Furthermore, the Court noted, “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 held that, on taking cognizance of an offence under Section 138 of N.I. Act, a decree against the respondent will not follow automatically. However, the Court noted that it is a matter of trial. In para 18 the court observed, “…it is indeed a matter of trial as to what was the liability of the respondent/defendant towards the petitioner/plaintiff and towards what transaction or service rendered by the petitioner/plaintiff, that is, as a lender or as a legal advisor, would he be entitled to the suit amount”. 

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The Court further upheld the decision of Trial Court, “The learned Trial Court was, therefore right in observing that the defence taken was not moonshine and disclosed triable issues which required inquiry. Leave to defend had to be granted in the light of these varying stands taken by the petitioner/plaintiff in different proceedings”.

CLICK HERE TO READ JUDGMENT.

*Shriya Singh is a 1st year student pursuing B.A.LL.B.(Hons.) from National Law University, Delhi.