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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 RESPONDENT

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 Maharshtra ….RESPONDENT

SUBMISSION TO THE HON’BLE HIGH COURT

MEMORIAL ON BEHALF OF THE RESPONDENT

TABLE OF CONTENTS

SR.NO PARTICULARS PAGE NO.

1. List of abbreviations 4.

2. Index of Authorities 5.

3. Statement of Jurisdiction 6.

4. Statement of Facts 7.

5. Statement of Issues 12.

6. Summary of Arguments 13.

7. Argument Advanced 14.

8. Prayer 19.

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 JURISDICTION:

The Counsel of Respondents, hereby humbly submit to this Hon’ble High Court’s Jurisdiction under Article 225 of the Constitution of India. The Respondent humbly submits before this Hon’ble court that the said Writ Petition should not be held maintainable.

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.  The Applicants being aggrieved by the order of the learned Metropolitan Magistrate of allowing the Substitution Application preferred a Revision Application before the Sessions Court by challenging the said order.

The Counsel for the Applicants argued before the Sessions Court that: i. The Learned Metropolitan Magistrate has erred in not considering that the Negotiable Instruments Act 1881 was enacted for the purpose of prosecuting the offender and is not in the nature of a recovery proceeding. ii. The Learned Metropolitan Magistrate has erred in not considering that the Respondent cannot fall within the definition of “Holder in Due Course” and therefore cannot be eligible to prosecute the Applicant. iii. It also contended that the perusal of Section 9 of the Negotiable Instruments Act, 1881 shows that a “Holder In Due Course” is a person who for a consideration has become the possessor of a cheque if payable to the bearer or the Payee or the endorsee thereof if payable to order before the amount mentioned in it became payable. This shows that Section 9 of the Negotiable Instruments Act, 1881 has to satisfy three necessary conditions (i) the Endorsee becomes the Holder In Due Course for consideration (ii) he can become an Endorsee before the amount mentioned in the cheque becomes payable and (iii) he should have no sufficient cause to believe that any defect existed in the title of the person from whom he derived his title. iv. Section 142 of The Negotiable Instruments Act, 1881 (as amended) further encompasses that non-obstante clause which says that no court shall take cognizance of any offence under section 138 of The Negotiable Instruments Act, 1881 (as amended) unless the Complaint

is made in writing by the Payee or the Holder In Due Course. This necessarily implies that the Complaint can be prosecuted only by the 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.

STATEMENT OF ISSUES

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?

ISSUE 2: Whether the expression “other Legal Proceedings” used in Section 5(4) of the

SARFESI Act, 2002 will include a criminal proceeding?

ISSUE 3: Whether the Respondent No.1 will fall within the purview of the expression

“Holder in Due Course”?

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 Respondents before this Hon’ble High Court that

Section 302 of the code of Criminal Procedure in a complaint which is filed for the

offence under section 138 r/w 141 of Negotiable Instrument Act, 1881 should be held

valid and allowable.

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 Respondents before this Hon’ble High Court that

the expression “other legal Proceedings” used in Section 5(4) of the SARFESI Act, 2002

will 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 Respondents before this Hon’ble High Court

that Respondent No.1 will 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 Respondents before this Hon’ble High Court that

Section 302 of the code of Criminal Procedure in a complaint which is filed for the

offence under section 138 r/w 141 of Negotiable Instrument Act, 1881 should be held

valid and allowable.

Section 302 of Cr.P.C- Permission to conduct prosecution.

(1) 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.

(2) Any person conducting the prosecution may do so personally or by a pleader.

It clearly states that the magistrate has due powers to permit any person to conduct the

prosecution. Hence it shall be held valid 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. As the word of the provision here are crystal

clear that the any person other than a police officer can be a prosecutor and the mutual

role of interpretation should be followed and hence the court shall not waste its precious

time on applying its mind on something that does not need further interpretation.

In J.K. International v. State (Govt. of NCT of Delhi) where it was held that that a

private person can be permitted to conduct the prosecution in the Magistrate’s Court and

can engage a counsel to do the needful on his behalf. Also, when permission is sought to

conduct the prosecution by a private person, it is open to the court to consider his request

and the Court has to form an opinion that cause of justice would be best subserved and it

is better to grant such permission and it would generally grant such permission.

Section 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, be

punished with imprisonment for [a term which may be extended to two years], or with

fine which may extend to twice the amount of the cheque, or with both: Provided that

nothing contained in this section shall apply unless—

(a) the cheque has been presented to the bank within a period of six months from the date

on which it is drawn or within the period of its validity, whichever is earlier;

(b) the payee or the holder in due course of the cheque, as the case may be, makes a

demand for the payment of the said amount of money by giving a notice in writing, to the

drawer of the cheque, 20 [within thirty days] of the receipt of information by him from the

bank regarding the return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of the said amount of money to

the payee or, as the case may be, to the holder in due course of the cheque, within fifteen

days of the receipt of the said notice.

Section 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 liable to punishment if he proves that the offence was committed without his

knowledge, or that he had exercised all due diligence to prevent the commission of such

offence.

In the present case the cheque was drawn by the Petitioner for the amount payable by the

Original Complainant the same have been dishonored. Hence as per Section 138 the

Petitioner is deemed to have committed the offence for dishonor of the cheque of and the

Company and its Directors are liable for compensation/penalty as laid down in Section

141 of Negotiable Instrument Act 1881.

In the case of Dalmia Cement (Bharat) Ltd. v. Galaxy Traders and Agencies Ltd- The

complaint filed under Section 138 of the Negotiable Instruments Act, 1881 (hereinafter

called "the Act") was quashed by the High Court vide the judgment impugned in this

appeal holding that the same was barred by time as the complainant had allegedly failed

to file it within the statutory period from the date of accruing of the cause of action. The

court observed that the Act was enacted and section 138 thereof incorporated with a

specified object of making a special provision by incorporating a strict liability so far as

the cheque as a negotiable instrument is concerned.

Therefore, the Hon’ble Court should held the complaint valid and allowable 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.

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 Respondents before this Hon’ble High Court that

the expression “other legal Proceedings” used in Section 5(4) of the SARFESI Act, 2002

will 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.

The word “ejusdem generis” which means "of the same sort," When two or more words have similar meaning, they can be grouped together and must be interpreted in a connected manner. By doing this, the contradictory link between a generic phrase and a specific word is resolved.

The particular words must be included in the generic term's scope. Moreover, the Blacklaw 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 was also stated in the case of Man Singh Tusaria vs. J.M. Financial Asset

Reconstruction Co. Pvt. Ltd, that Section 5(4) was framed to validate the lawful rights

that banks possess, and these rights cannot be taken away or altered when the assignment

deed is signed. This is a civil proceeding whereas the proceedings under section 138 of

the negotiable instruments act is criminal in nature. This is supported by the case of Port

Rico Railway, Light & Power Co. v. Mor, there was a provision of the Federal

Criminal Code63 which mandates restitution for the full amount of the victim's losses,

which are defined to include five specific types of loss (e.g., medical costs, lost income)

and "any other losses suffered by the victim as a proximate result of the offense." Thus, it

was said that When several words are followed by another word which is applicable as

much to the first and other words as the last, the natural construction of the language

demands that the word be read as applicable to all."

The Supreme Court in Syed Askari Hadi Ali Augustine Imam and Ors. vs. State

(Delhi Admn.) and Ors. (AIR 2009 SC 3232) discussed the same issue and reiterated

that: Indisputably, in a given case, a civil proceeding as also a criminal proceeding may

proceed simultaneously. Cognizance in a criminal proceeding can be taken by the

criminal court upon arriving at the satisfaction that there exists a prima facie case. The

question as to whether in the facts and circumstances of the case one or the other

proceedings would be stayed would depend upon several factors including the nature and

the stage of the case.”

Therefore, according to principle of ejusdem generis it clearly states that other

proceeding does include criminal proceedings and the same may proceed simultaneously

and the offence committed under section 138 of Negotiable Instrument is but obvious

criminal in nature and hence it should include 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 Respondents before this Hon’ble High Court

that Respondent No.1 falls within the purview of the expression “Holder in Due Course”.

Section 9 in the Negotiable Instruments Act, 1881

“Holder in due course” Holder in due course” means any person who for consideration

became the possessor of a promissory note, bill of exchange or cheque if payable to bearer,

or the payee or endorsee thereof, before the amount mentioned in it became payable, and

without having sufficient cause to believe that any defect existed in the title of the person

from whom he derived his title.

In the case of Bank of India Vs. State and Others the court held that it states clearly under

the definition of “Holder in due course” that being a holder in due course of a bill or cheque

it was not necessary that there should be endorsement of the bill or cheque. Holder in course

has been defined as any person who for the consideration becomes the possessor of the

promissory note or the cheque and there is no doubt that the endorsee or the payee of such a

bill or cheque is also considered as a holder in due course.

Also in case of Ratilal Harmanbhai Patel Vs. State of Gujarat & Anr. The court held

that section 138 – “ Holder in due course” the Purchaser of a cheque, is a holder in due

course and the Endorsement in favour of purchaser of the cheque, is not necessary and

hence the Complaint under .138 by such holder in due course, and hence the case should

be held maintainable.

Section 9 states three essentials which needs to be fulfilled for a person to be a “Holder in

Due Course”

 That he must he a possessor for consideration

 He must become the possessor before the amount becomes payable and

 That without having sufficient cause to believe that any defect existed in the title

of the person from whom he derived his title.

Here in this case the Respondent No.1 has come with the possession of the instrument

after paying the consideration and before the cheque were payable and the third essential

has been fulfilled that Respondent No.1 did not have any sufficient cause to believe that

any defect existed in the title of the person from whom he derived his title.

The case of Man Singh Tusaria vs J M Financial Asset it states that since he the

“Holder in Due Course” once the interest stands transfer the bank would have no interest

in prosecuting the Complaint and the Respondent No.1 is not entitled to be

substituted in place of Respondent No.2 in all the legal proceedings, it would have an effect of giving an undue advantage to overall case

Hence the Respondent No.1 falls within the purview of the expression “Holder in Due

Course”.

PRAYER

In the light of issues raised, arguments advanced and authorities cited, the Respondent

humbly and respectfully prays that the Hon’ble Court be pleased:

1) To declare that the Complaint 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 is valid and allowable.

2) To declare that the expression “other Legal Proceedings” used in Section 5(4) of

the SARFESI Act, 2002 does include a criminal proceeding and

3) 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.