Property Law / Leasehold Land – Mortgage without Consent – Lease deed stipulated that mortgage/charge over the leasehold plot could be created only with prior written consent of the Lieutenant Governor – No such consent obtained – Mortgage in favour of Bank held illegal and void – Bank, despite knowledge of leasehold nature of land, proceeded to advance loan – DDA entitled to enforce statutory dues. Debt Recovery / Auction Sale – Validity – Auction conducted by Recovery Officer under Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (now Recovery of Debts and Bankruptcy Act, 1993) – Section 29 makes applicable Second & Third Schedules of the Income Tax Act, 1961 and Rules, 1962 – Rule 53 requires proclamation of sale to disclose all material facts affecting value, including encumbrances – DDA’s statutory claim of unearned increase not disclosed – Auction proclamation defective – Auction held in violation of statutory rules and terms of lease – Auction sale, confirmation of sale and sale certificate quashed. Writ Jurisdiction / Res Judicata – Earlier writ petition (2012) withdrawn by DDA in view of Bank’s undertaking that auction would comply with lease conditions – Later writ (2014) challenged auction conducted in violation of lease terms – Earlier writ not decided on merits – Doctrine of Res Judicata / principles analogous to Section 11 CPC not attracted – DDA had fresh cause of action. Restitution / Auction Purchaser’s Rights – Auction purchaser bona fide bidder, not at fault – Equity demands protection against consequences of illegal auction – Restitution is a moral imperative – Bank, having advanced loan on illegal mortgage and auctioned property unlawfully, directed to refund full sale consideration with interest @ 9% p.a. to auction purchaser.

Property Law / Leasehold Land – Mortgage without Consent – Lease deed stipulated that mortgage/charge over the leasehold plot could be created only with prior written consent of the Lieutenant Governor – No such consent obtained – Mortgage in favour of Bank held illegal and void – Bank, despite knowledge of leasehold nature of land, proceeded to advance loan – DDA entitled to enforce statutory dues.

Debt Recovery / Auction Sale – Validity – Auction conducted by Recovery Officer under Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (now Recovery of Debts and Bankruptcy Act, 1993) – Section 29 makes applicable Second & Third Schedules of the Income Tax Act, 1961 and Rules, 1962 – Rule 53 requires proclamation of sale to disclose all material facts affecting value, including encumbrances – DDA’s statutory claim of unearned increase not disclosed – Auction proclamation defective – Auction held in violation of statutory rules and terms of lease – Auction sale, confirmation of sale and sale certificate quashed.

Writ Jurisdiction / Res Judicata – Earlier writ petition (2012) withdrawn by DDA in view of Bank’s undertaking that auction would comply with lease conditions – Later writ (2014) challenged auction conducted in violation of lease terms – Earlier writ not decided on merits – Doctrine of Res Judicata / principles analogous to Section 11 CPC not attracted – DDA had fresh cause of action.

Restitution / Auction Purchaser’s Rights – Auction purchaser bona fide bidder, not at fault – Equity demands protection against consequences of illegal auction – Restitution is a moral imperative – Bank, having advanced loan on illegal mortgage and auctioned property unlawfully, directed to refund full sale consideration with interest @ 9% p.a. to auction purchaser.

---

FINAL ORDER

• High Court order (11.08.2014) dismissed.

• E-auction notice (27.09.2012), auction sale (09.11.2012), confirmation of sale (08.07.2013) and sale certificate (12.07.2013) quashed.

• Bank directed to refund entire amount deposited by Auction Purchaser with 9% interest from date of deposit till repayment.

• Appeal allowed.

  2025 INSC 1161
  1
  REPORTABLE
  IN THE SUPREME COURT OF INDIA
  CIVIL APPELLATE JURISDICTION
  CIVIL APPEAL NO. 11269 OF 2016
   DELHI DEVELOPMENT AUTHORITY … APPELLANT
   Versus
   CORPORATION BANK & ORS. … RESPONDENTS
  J U D G M E N T
   ALOK ARADHE, J.
  1. This appeal emanates from an order dated 11.08.2014
  passed in Writ Petition (C) No. 5005 of 2014 by which High
  Court of Delhi has dismissed the writ petition preferred by
  the appellant.
  The present appeal brings before this Court a contest
  not merely of rights but of duties - the duty of the lessee to
  honour the covenants of the lease, the duty of a bank to
  exercise due diligence before advancing public money and
  the duty of an instrumentality of the state, as trustee of
  public property, to guard against encroachment upon its
  title. It also brings before us the plight of an Auction 
  2
  Purchaser who entered the field in good faith only to find
  the ground beneath its feet unstable.
  2. The relevant facts leading to filing of this appeal are as
  under:-
  (i) FACTS: -
  3. The Delhi Development Authority-the Appellant
  (hereinafter referred to as “DDA”) on 01.10.2001 allotted
  Plot No. 25, Facility Centre-33 Kalindi Kunj Road, Jasola,
  New Delhi admeasuring 877.50 square metres (hereinafter
  referred to as “subject plot”) to Respondent No. 2 namely,
  Sarita Vihar Club (hereinafter referred to as “the club”) on
  leasehold basis. The subject plot was allotted to the club on
  a premium of Rs.62,96,664/- for construction of a
  recreational and sports club. The club was required to pay
  a provisional premium, in respect of subject plot, at the rate
  of Rs.2,90,40,000/- per acre with annual ground rent at
  the rate of Rs. 2.5 % per annum of the total premium. As
  per the letter of allotment dated 01.10.2001, the club, with
  previous consent in writing of the Lieutenant Governor of
  Delhi, could mortgage or charge the subject plot to such 
  3
  person as may be approved by the Lieutenant Governor in
  his absolute discretion.
  4. The club on 28.11.2001 deposited a sum of Rs.29,50,000/-
  to the DDA. It appears that the club applied for sanction of
  loan for a sum of Rs.35,00,000/- to Respondent No. 1
  namely, the Corporation Bank (hereinafter referred to as
  the “Bank”). The Bank thereafter by a communication dated
  07.02.2002 informed the club that the proposal of sanction
  of loan is being forwarded to the higher authorities for
  consideration and requested the club to seek a permission
  for mortgaging the subject plot from the DDA. The club vide
  communication dated 11.02.2002, sought the permission
  of the DDA for mortgaging the subject plot for arranging the
  balance payment. The DDA, by a communication dated
  22.02.2002, granted NOC to the club for applying loan to
  the Bank for making payment to the DDA, on account of
  the premium of the plot subject to the condition that
  permission for mortgage of the plot shall be issued only
  after execution/registration of the lease deed. The Bank
  thereafter by a communication dated 22.03.2002 sought
  the permission of the DDA for mortgage of the subject plot 
  4
  and to note lien of the Bank on the subject plot. The club
  on 12.04.2002 deposited an additional amount of
  Rs.2,05,000/- to the DDA which included the interest on
  the delayed payment as well. Thereupon DDA on
  29.04.2002 issued a modified letter of allotment in favour
  of the club and the amount of initial premium of
  Rs.64,53,107/- was modified to Rs.64,54,126/-.
  5. A perpetual lease deed in respect of subject plot was
  executed on 28.01.2005 between the DDA and the club.
  Clause 5(b) of the lease deed provided that previous consent
  in writing of Lieutenant Governor of Delhi for mortgage or
  charge of the subject plot was necessary. Clause (6) deals
  with DDA’s right to recover an unearned increase and preemptive right to purchase the subject plot. The club was
  under an obligation to complete the construction within a
  period of two years.
  6. It appears that the subject plot was mortgaged with the
  Bank and original registered perpetual lease deed was
  deposited with the Bank. The Bank thereupon by a
  communication dated 09.03.2005 informed the DDA that
  the club has mortgaged the subject plot with it and the DDA 
  5
  was requested to take a note of mortgage of the subject plot
  with the Bank.
  7. The club defaulted in payment of the loan taken by it from
  the Bank. Thereupon the Bank filed an original application
  under Section 19 of Recovery of Debts Due to Banks and
  Financial Institutions Act, 1993 [now known as Recovery of
  Debts and Bankruptcy Act, 1993 (for short “1993 Act”]
  before the Debts Recovery Tribunal-I, Delhi (hereinafter
  referred to as “DRT”) for recovery of sum of
  Rs.86,46,790.37. The aforesaid application was allowed on
  27.08.2010 by the DRT. The Recovery Officer, DRT on
  02.02.2011 issued a notice, for drawing up the
  proclamation of sale and settling the terms thereof and
  informed the Bank to bring to its notice the encumbrances,
  charges, and claims of liabilities attached to the subject plot
  or any portion thereof. The DDA by a communication dated
  24.02.2011 informed the Recovery Officer, DRT that the
  club has not sought the permission of the DDA to create a
  mortgage in favour of the Bank and therefore the mortgage
  of the subject plot in favour of the Bank is illegal and void.
  The DDA in the aforesaid communication stated that the 
  6
  sale of the property be set aside and the proceeding to draw
  the proclamation of sale and settling the terms thereof be
  immediately stopped.
  8. The DDA thereafter on 30.06.2011 filed an affidavit before
  the Recovery Officer, DRT objecting to the sale of the
  subject plot on the ground that the permission to mortgage
  the subject plot was never granted by the DDA and
  therefore the mortgage in favour of the Bank is illegal. The
  Bank thereupon by a communication dated 22.07.2011
  requested the DDA to inform about the amount of unearned
  increase which is due and payable to it after the sale of the
  subject plot is effected.
  9. The DDA thereupon again filed an affidavit before the
  Recovery Officer, DRT objecting to the sale inter alia on the
  grounds that under the lease deed it has the right to recover
  the unearned increase and has the pre-emptive right to
  purchase the subject plot. The Recovery Officer by an order
  dated 27.02.2012 rejected the objections raised by the DDA
  as contained in the affidavits dated 16.02.2012 and
  30.06.2011.
  7
  10. The DDA filed an appeal before the DRT against the order
  of the Recovery Officer dated 27.02.2012. The aforesaid
  appeal was dismissed by an order dated 25.06.2012, by the
  DRT. The Recovery Officer of DRT by an order dated
  21.09.2012 held that the subject plot shall be sold by an eauction sale on 09.11.2012. Thereafter on 27.09.2012 eauction sale notice and proclamation of sale published by
  DRT which recorded the terms and conditions of the eauction notice.
  11. The DDA sometime in October, 2012 filed an appeal under
  Section 18 of the Securitisation and Reconstruction of
  Financial Assets and Enforcement of Security Interest Act,
  2002 against orders dated 27.02.2012 and 25.06.2012
  passed by DRT.
  12. The DDA on 03.11.2012 filed a Writ Petition (C) No. 6972
  of 2012 before Delhi High Court seeking to quash and set
  aside the order dated 25.06.2012 passed by the DRT and
  to quash and set aside e-auction notice dated 27.09.2012
  issued by Recovery Officer, DRT. In the said Writ Petition,
  the counsel for Bank on 05.11.2012 made a statement that
  auction will be subject to terms and conditions of the lease. 
  8
  In view of the aforesaid statement made by the Bank, which
  was also recorded by the High Court in its order, the
  counsel for the DDA did not press the writ petition. The
  High Court thereupon by an order dated 05.11.2012
  dismissed the writ petition as withdrawn. The DDA by a
  communication dated 06.11.2012 informed the Manager of
  the Bank and the Recovery Officer, DRT about the
  undertaking by the Bank recorded by the High Court in its
  order dated 05.11.2012.
  13. The auction of the subject plot was held on 09.11.2012
  wherein Respondent No. 6 -M/s Jay Bharat Commercial
  Enterprises Pvt. Ltd. (hereinafter referred to as “Auction
  Purchaser”) was declared the highest bidder in respect of
  subject plot. The bid price of the Auction Purchaser of
  Rs.13.15 crores as against the reserve price Rs.8.85 crores
  was accepted. The Auction Purchaser deposited sale
  proceeds through various demand drafts in favour of
  Recovery Officer, DRT. The Recovery Officer, DRT by an
  order dated 08.07.2013 confirmed the sale in favour of the
  Auction Purchaser. A sale certificate dated 12.07.2013 was
  issued in favour of the Auction Purchaser, and on 
  9
  17.07.2013, the possession of the subject plot was handed
  over to auction purchaser.
  14. The auction purchaser on 29.07.2013 filed an application
  before the Recovery Officer DRT for exonerating itself from
  paying the liabilities and claims over the subject plot which
  was sold in a public auction. The notice of the said
  application was issued to the DDA to disclose the amount
  of unearned increase. The DDA however, sought an
  adjournment in the aforesaid proceedings. The Recovery
  Officer, DRT, on 18.09.2013 directed the DDA to file an
  affidavit, in respect of rules of calculation of unearned
  increase as well as details of institutional
  land/sold/allotted/leases in recent time by the DDA so as
  to enable it to know the present rates for institutional lease
  hold property.
  15. The DDA filed a Special Leave Petition against the order
  dated 05.11.2012 passed by the High Court. The aforesaid
  Special Leave Petition was dismissed on 25.10.2013 on the
  ground of delay. The DDA on 07.11.2013 informed the
  Recovery Officer of DRT about the dismissal of SLP
  preferred by it and therefore sought time for compliance 
  10
  with the directions issued by DRT. The DDA on 10.12.2013
  filed an affidavit of compliance before the Recovery Officer
  with regard to calculation of the amount of unearned
  increase. The Recovery Officer vide order dated 22.01.2014
  recorded that DDA is not ready to redeem the property at
  the cost of Rs.27.73 crores which was being demanded
  approximately. The DDA filed an application under Section
  22 of the 1993 Act before the Recovery Officer stating that
  even if the sale is considered to be valid, the Auction
  Purchaser would only have the status of a lessee.
  16. The DDA filed another writ petition namely, Writ Petition
  (C) No. 5005 of 2014 before the High Court seeking to set
  aside the e-auction conducted by the Recovery Officer on
  09.11.2012 in pursuance of e-auction notice dated
  27.09.2012 and to set aside the acts and omissions of the
  Bank and the club with respect to the subject plot. The High
  Court by an order dated 11.08.2014 held that it is open to
  the DDA to challenge the order dated 12.03.2014 passed by
  the DRAT in accordance with law. The High Court further
  inter alia held that issues raised in the instant petition by
  the DDA and in the Writ Petition (C) No. 6972 of 2012,
  11
  which was dismissed as withdrawn on 05.11.2012 and the
  subsequent writ petition are same. It was further held that
  aforesaid order dated 05.11.2012 in Writ Petition (C) No.
  6972 of 2012 has attained finality and the same issues
  cannot be raised once again. It was further held that
  principles analogous to Section 11 of the Code of Civil
  Procedure, 1908 would apply. Accordingly, the petition was
  dismissed. In the aforesaid background this appeal arises
  for consideration.
  17. During the pendency of this appeal the DRT on an
  application filed by the Auction Purchaser, by an order
  dated 01.12.2014, has released the amount of
  Rs.12,26,42,478/- in favour of the Auction Purchaser inter
  alia on the ground that at this stage the sale cannot be set
  aside/cancelled and at the most amount lying in FDRs can
  be returned to the Auction Purchaser till the Special Leave
  Petition preferred by DDA pending before this Court is
  decided.
  (ii) SUBMISSIONS BY DDA: -
  18. Learned Senior counsel for the DDA submitted that the
  terms of the lease deed, specifically stipulated that a 
  12
  mortgage or charge has to be created in respect of subject
  plot only with prior consent in writing, of the Lieutenant
  Governor. It is further submitted that no consent in writing
  of the Lieutenant Governor before creation of mortgage in
  favour of the Bank was taken and the DDA is entitled for
  its statutory dues. It is pointed out that DDA by a
  communication dated 22.07.2011 informed the Bank about
  the amount of unearned increase, which was to be
  deposited. It is further pointed out that the DDA had filed
  a detailed affidavit before the Recovery Officer regarding its
  statutory claims including the ground rent due and the
  amount due and payable to it on account of unearned
  increase. It is contended that the subject plot was sold in
  contravention of the statement made before the High Court
  in Writ Petition (C) No. 6972 of 2012, which was recorded
  in the order dated 05.11.2012 passed by the High Court.
  19. It is argued that the Bank has committed multiple
  illegalities, from the stage of application for grant of loan till
  sale of land. It is urged that the Bank has disbursed the
  loan to the club without intimating the DDA and ought to
  have appreciated that DDA had granted, no objection only,
  13
  to apply for a loan to the extent of 35 lakhs only. However,
  the bank sanctioned a loan of Rs.60 lakhs. It is contended
  that the Bank had the knowledge that the property was not
  a freehold property and DDA is entitled for statutory dues.
  It is further contended that the sale is therefore liable to be
  set aside and the subject plot be restored to the DDA
  permitting it to claim its statutory dues from the Bank.
  (iii) SUBMISSIONS BY BANK: -
  20. Learned counsel for the Bank submitted that the Bank
  vide communication dated 09.03.2005 had informed the
  DDA that the club had mortgaged, the subject plot with the
  Bank and had deposited perpetual lease deed dated
  28.01.2005, however, the DDA maintained a stoic silence
  till 25.02.2011 i.e. the first appearance before the Recovery
  Officer, DRT. It is contended that by an auction notice dated
  27.09.2012, the subject plot was sold on “as is where is
  basis” and therefore the DDA could have exercised its preemptive right to purchase the subject plot through auction
  and recover its dues. It is further contended that for the
  reasons, best known to the DDA, the said option to 
  14
  purchase the subject plot, was not exercised. It is urged
  that, in principle, NOC was granted by the DDA vide letter
  dated 22.02.2002 and DDA was aware of the lien of the
  bank on the subject plot. It is submitted that this appeal
  amounts to an abuse of process of law. It is further
  submitted that principle of estoppel applies to facts of the
  case and appeal is liable to be dismissed.
  (iv) SUBMISSIONS OF AUCTION PURCHASER: -
  21. Learned Senior counsel for Auction Purchaser submits
  that Section 29 of the 1993 Act makes the provision of
  Second and Third Schedule to the Income Tax Act, 1961
  (hereinafter referred to as “1961 Act”) and Income Tax
  (Certificate Proceedings) Rules, 1962 (hereinafter referred
  to as “the Rules, 1962”) applicable to sales of immovable
  property under the 1993 Act. It is further submitted that
  under Rule 16 of the Rules, 1962, it was incumbent on the
  Recovery Officer as well as parties before the DRT to have
  determined and conclude all issues that materially affect,
  the value of the property or fixation of the reserve price
  under Rule 18, prior to issue of proclamation of sale. It is
  contended that the sale has been held in violation of Second 
  15
  and Third Schedule to the 1961 Act and, therefore, the
  auction sale is liable to be set aside. It is further contended
  that neither the sale proclamation disclosed any quantified
  claim of the DDA nor the reserve price reflected the market
  value, that DDA claims. It is submitted that DDA cannot
  foist its right to claim an amount of unearned increase over
  and above the auction price on the Auction Purchaser. It is
  therefore submitted that e-auction conducted on
  09.11.2012 by the Recovery Officer, DRT be set aside and
  the Bank be directed to refund the Auction Purchaser an
  amount of Rs.1,68,28,488/- retained by it along with
  interest at the rate of 15% being the rate charged by it
  which is evident from the sale proclamation.
  (v) CONSIDERATION : -
  22. We have considered the rival submissions made on both
  sides and have perused the records, as well as the written
  submissions filed on behalf of DDA, Bank and the Auction
  Purchaser. Before proceeding further, it is apposite to take
  note of relevant statutory provisions.
  23. Section 29 of the 1993 Act deals with application of certain
  provisions of Income-tax Act. It provides that provisions of 
  16
  Second and Third Schedules to the Income Tax Act, 1961
  and the Income Tax (Certificate Proceedings) Rules, 1962,
  as in force from time to time, shall as far as possible, apply
  with necessary modifications as if the said provisions and
  the Rules referred to the amount of debt due under this
  Act instead of to the Income-tax. The Second Schedule
  provides for procedure of recovery of tax, whereas the
  Third Schedule deals with procedure for distraint by
  Assessing Officer or Tax Recovery Officer. Rule 53 of
  Second Schedule to 1961 Act deals with contents of
  proclamation. It provides that a proclamation of sale of
  immovable property shall be drawn up after notice to the
  defaulter, and shall state the time and place of sale, and
  shall specify, as fairly and accurately as possible: -
   “(a)The property to be sold;
  (b)The revenue, if any, assessed upon
  the property or any part thereof;
  (c)The amount for the recovery of
  which the sale is ordered
  (d)Any other thing which the Tax
  Recovery Officer considers it material
  for a purchaser to know, in order to
  judge the nature and value of the
  property.”
  17
  24. Thus, Rule 53 mandates the Recovery Officer to mention
  in the proclamation of sale any other thing which he
  considers material for purchaser to know in order to judge
  the nature and value of the property.
  25. In exercise of powers under Section 295(1) of the 1961 Act
  and Rules 91 and 92 of the Second Schedule of the 1961
  Act, the Central Board of Revenue has made the Rules
  namely, the Income Tax (Certificate Proceedings), Rules
  1962. Rule 16 of the Rules empowers the Recovery Officer
  to summon any person whom he thinks necessary to
  summon and may examine him in respect of any matters
  relevant to the proclamation and require him to produce
  any document in his possession or power relating thereto.
  26. In the backdrop of aforesaid relevant statutory provisions,
  we advert to the facts of the case in hand. Sometimes in
  the year 2008, the Bank filed an application under Section
  19 of 1993 Act for recovery of the dues against the club. It
  is pertinent to note that under Clause 5(a) and 5(b) of the
  lease deed, executed between the lessee and the Club, the
  DDA had the right of pre-emption. The fact that the
  subject plot had been allotted on lease to the Club by the 
  18
  DDA was within the knowledge of the Bank. However, DDA
  was not impleaded as a party in the said proceedings
  under Section 19 of the 1993 Act. In pursuance of
  Recovery Certificate dated 27.08.2010 issued by DRT, for
  recovery of sum of Rs.86,46,790.37, the Recovery Officer
  on 02.02.2011 issued notice for drawing up the
  proclamation of sale and settling the terms thereof and
  informed, the Bank to bring to its notice, the
  encumbrances, charges, claims of liabilities attached to
  the said property. The DDA filed an objection before the
  Recovery Officer on the ground that no permission was
  granted by it to mortgage subject plot to the Bank.
  However, the aforesaid objection was rejected on
  27.02.2012 by the Recovery Officer. The Recovery Officer
  without directing the DDA to quantify its claim on account
  of unearned increase in relation to the subject plot and
  without ascertaining the same, directed, that sale
  proclamation be issued.
  27. An e-auction notice was issued on 27.09.2012. In the said
  e-auction notice, sale price was fixed at Rs.8.85 crores.
  However, the fact that DDA has an encumbrance i.e. the 
  19
  claim for an amount of unearned increase in respect of
  subject plot was not disclosed in the e-auction. The Bank
  also failed to disclose the terms and conditions of the lease
  executed between the DDA and the Club, to the Recovery
  Officer which, it was under an obligation to do so in view
  of the statement made by it before the High Court, as
  recorded in the order dated 05.11.2012 pass in W.P. (C)
  No. 6972 of 2012. Thus, it is evident that e-auction notice
  was issued in violation of Rule 53 of the Second Schedule
  to the 1961 Act as well as Rule 16 of the Rules, 1962.
  Therefore, no sanctity can be attached to the e-auction
  sale notice and proclamation of sale dated 27.09.2012 as
  well as confirmation of sale and sale certificate dated
  08.07.2013 and 12.07.2013 respectively issued in favour
  of the Auction Purchaser.
  28. A Constitution Bench of this Court in Daryao & Ors. v.
  State of U.P. and Ors.1 dealt with the question of
  applicability of principle of Res Judicata in writ
  proceedings, and has summarised its conclusion in para
  26 of its judgement. The aforesaid paragraph was
  1 1961 SCC OnLine SC 21 : (1962) 1 SCR 574 : AIR 1961 SC 1457
  20
  extracted by another Constitution Bench of this Court in
  Gulabchand Chhotalal Parikh v. State of Gujarat2
  in
  para 53 as follows :-
  “53. In Daryao Case this Court had again
  dealt with the question of the applicability
  of the principle of res judicata in writ
  proceedings. The matter was going through
  very exhaustively and the final conclusions
  are to be found at p. 592. We may
  summarise them thus :
  1. If a petition under Article
  226 is considered on the merits
  as a contested matter and is
  dismissed, the decision would
  continue to bind the parties
  unless it is otherwise modified or
  reversed by appeal or other
  appropriate proceedings
  permissible under the
  Constitution.
  2. It would not be open to a party
  to ignore the said judgment and
  move this Court under Article
  32 by an original petition made
  on the same facts and for
  obtaining the same or similar
  orders or writs.
  3. If the petition under Article
  226 in a High Court is dismissed
  not on the merits but because of
  the laches of the party applying
  for the writ or because it is held
  that the party had an alternative
  2
   1964 SCC OnLineSC 99 : (1965) 2 SCR 547 : AIR 1965 SC 1153
  21
  remedy available to it, the
  dismissal of the writ petition
  would not constitute a bar to a
  subsequent petition under Article
  32.
  4. Such a dismissal may however
  constitute a bar to a subsequent
  application under Article
  32 where and if the facts thus
  found by the High Court be
  themselves relevant even
  under Article 32.”
  29. Thus, the doctrine of Res Judicata, salutary as it is, rests
  upon foundation that a matter once heard and finally
  decided between the parties cannot be reopened. In light
  of the aforesaid well settled legal propositions, the facts of
  the case in hand may be noticed. The earlier writ petition
  i.e. Writ Petition (C) No. 6972 of 2012 filed by the DDA was
  withdrawn in view of the undertaking furnished by the
  bank that the auction shall take place in accordance with
  terms and conditions of the lease. The earlier writ petition
  was not decided on merits. In view of undertaking
  furnished by the bank, as recorded by that High Court in
  its order dated 05.11.2012, the DDA had a right to insist
  that auction is held in accordance with terms and
  conditions of the lease. The auction was held in violation 
  22
  of terms of the lease on 09.11.2012. Therefore, the DDA
  had a fresh cause of action to approach the Court. Thus,
  principles analogous to Section 11 of Civil Procedure Code,
  1908 did not apply to obtaining factual matrix of the case.
  The High Court without adverting to the validity of the
  auction which was per se illegal as the same was
  conducted in violation of the terms and conditions of the
  lease deed and the provisions of the 1961 Act and 1962
  Rules, erred in dismissing the Writ Petition on the ground
  that the same was barred by the principles analogous to
  Section 11 of the CPC.
  30. We now address the position of the Auction Purchaser. In
  Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe
  Barbour Ltd.3
  , it was held that any civilized system of law
  is bound to provide remedies for cases of what has been
  called unjust enrichment or unjust benefit, that is, to
  prevent a man from retaining the money of or some benefit
  derived from another which it is against conscience that
  he should keep. Such remedies in English law are
  generally different from remedies in contract or in tort, and
  3 1943 AC 32 : (1942) 2 All ER 122 (HL)
  23
  are now recognized to fall within a third category of the
  common law which has been called quasi-contract or
  restitution. The aforesaid legal proposition was referred to
  with approval by a Two Judge Bench of this Court in
  Nagpur Golden Transport Company v. Nath Traders &
  Ors.4 The restitution therefore becomes not merely a legal
  device but a moral imperative. The principle of restitution
  flows from the very heart of justice that no one shall
  unjustly enrich himself at the instance of another and that
  those who suffered without fault should, so far as money
  can achieve, be restored to the position they once
  occupied. The jurisdiction to make restitution is inherent
  in every court and will be exercised wherever the justice of
  the case demands.
  31. In the facts of the present case, the Auction Purchaser
  has been caught in the undertow of circumstances, not of
  its making. Among all the actors in this legal drama, it
  alone stands innocent. The Auction Purchaser entered the
  auction in good faith, placed its bid and deposited its hardearned money in the belief that the law clothed the auction
  4
  (2012) 1 SCC 555
  24
  with legitimacy. The Auction Purchaser neither breached
  the covenant nor failed in diligence and did not seek to
  profit from the illegality. The restitution therefore becomes
  not merely a legal device but a moral imperative. It is this
  principle which in the facts of the case must guide the
  relief to the Auction Purchaser. The Bank having advanced
  the money of an illegal mortgage and having chosen to
  auction what it never lawfully possessed, bears the
  responsibility for the consequences.
  (vi) CONCLUSION: -
  32. In the result, impugned order dated 11.08.2014 passed
  by the High Court in Writ Petition (C) No. 5005 of 2014,
  the e-auction notice dated 27.09.2012 as well as the eauction conducted by the Recovery Officer, DRT on
  09.11.2012, the confirmation of sale and sale certificate
  dated 08.07.2013 and12.07.2013 respectively issued in
  favour of the Auction Purchaser are quashed and set
  aside. We direct the bank to refund the entire amount lying
  in deposit to the Auction Purchaser. The Auction
  Purchaser has been deprived of the use of its money for a
  considerable time, the money which would have earned 
  25
  value elsewhere. Therefore, the Auction Purchaser is
  entitled to interest on the balance amount which is lying
  in the deposit of the Bank. We, therefore, direct that the
  balance amount deposited by the Auction Purchaser
  which is with the bank be returned to the Auction
  Purchaser with an interest at the rate of 9% per annum
  within a month to be reckoned from the date of deposit till
  repayment.
  33. The appeal is accordingly allowed in the aforesaid terms.
  ……………….……………J.
   [SANJAY KUMAR]
  ..………………………….J.
   [ALOK ARADHE]
  NEW DELHI,
  SEPTEMBER 25, 2025.

Negotiable Instruments Act, 1881 — Ss. 118 & 139 — Presumptions — Scope & rebuttal Once execution/signature of cheque admitted, statutory presumptions under Ss.118 and 139 arise that cheque was issued for consideration and in discharge of legally enforceable debt/liability. Presumption is rebuttable but burden initially lies on accused to set up probable defence. Mere denial or bald assertions without cogent material cannot rebut. [Rangappa v. Mohan, (2010) 11 SCC 441; Bir Singh v. Mukesh Kumar, (2019) 4 SCC 197, relied on.] Negotiable Instruments Act, 1881 — S.138 — Defence of financial incapacity of complainant When accused challenges complainant’s financial capacity, burden shifts back to complainant only if accused produces credible material. Failure of accused to produce independent evidence (documents, witnesses, bank officials, ITO etc.) renders defence untenable. Failure to reply to statutory notice also leads to adverse inference against accused. [Tedhi Singh v. Narayan Dass Mahant, (2022) 6 SCC 735; MMTC Ltd. v. Medchl Chemicals, (2002) 1 SCC 234, applied.] Negotiable Instruments Act, 1881 — S.138 — Blank cheque defence Defence that a blank cheque was given to complainant to enable him to obtain bank loan is inherently improbable, particularly where account lacked sufficient funds. Such assertion, absent evidence, is “unbelievable and absurd”. Negotiable Instruments Act, 1881 — Ss.138, 142 — Pre-cognizance stage — Applicability of BNSS, 2023, S.223 In view of NI Act being a special enactment, there is no requirement of pre-cognizance summons under S.223 BNSS, 2023 in complaints under S.138 NI Act. Magistrate may directly take cognizance and issue process. [Ashok v. Fayaz Ahmad, 2025 SCC OnLine Kar 490, approved.] Negotiable Instruments Act, 1881 — S.138 — Cash loan above ₹20,000 — Effect of S.269SS, IT Act, 1961 Contravention of S.269SS IT Act (acceptance of loan/deposit above prescribed limit in cash) attracts only penalty under S.271D IT Act. Such breach does not render transaction illegal, void or unenforceable for S.138 purposes. Presumptions under Ss.118 & 139 NI Act remain attracted. Ker HC view in P.C. Hari v. Shine Varghese, 2025 SCC OnLine Ker 5535, held incorrect & set aside. Criminal Procedure — Revisional Jurisdiction — Scope Revisional Court cannot re-appreciate evidence or disturb concurrent factual findings of Trial and Appellate Courts absent perversity or jurisdictional error. [Southern Sales v. Sauermilch Design, (2008) 14 SCC 457; Bir Singh v. Mukesh Kumar, (2019) 4 SCC 197, referred.] Negotiable Instruments Act, 1881 — Ss.138, 143, 147 — Massive pendency — Guidelines issued In view of huge pendency of cheque dishonour cases (nearly 50% of Trial Court load in some metros), Supreme Court issues binding directions (effective 01.11.2025), inter alia: Service of summons: Not confined to usual modes; complainant to also serve dasti; service also via electronic means (email/WhatsApp etc.); affidavit of service mandatory. False affidavit — penal consequences. Online settlement: District Courts to create secure online QR/UPI facilities; summons to mention option of immediate payment by accused. Standardised complaint synopsis: Mandatory format covering party particulars, cheque details, dishonour, notice, cause of action, reliefs. Summary trial discipline: Trial Courts to record reasons before converting summary trial to summons trial; may ask structured questions u/s 251 CrPC / 274 BNSS at initial stage to clarify defence. Interim compensation: Courts encouraged to invoke S.143A NI Act early. Physical hearings post-service: To encourage settlement/compounding; exemptions from appearance sparingly. Evening courts: High Courts to fix realistic pecuniary limits (Delhi’s ₹25,000 ceiling held too low). Monitoring dashboards: District & Sessions Judges in Delhi, Mumbai, Calcutta to maintain live dashboards on pendency, disposal, settlement, adjournments. High Court committees to meet monthly, promote ADR, Lok Adalats, mediation. Negotiable Instruments Act, 1881 — S.147 — Compounding — Modification of guidelines in Damodar S. Prabhu, (2010) 5 SCC 663 Revised graded scheme: (a) If cheque amount paid before recording of defence evidence — compounding without costs. (b) If cheque amount paid post defence evidence but before Trial Court judgment — compounding with 5% additional costs. (c) If paid before Sessions Court/High Court in appeal/revision — 7.5% costs. (d) If paid before Supreme Court — 10% costs. Negotiable Instruments Act, 1881 — S.138 — Nature of offence Proceedings under S.138 are quasi-criminal; essentially civil dispute clothed with criminal liability. Purpose is not retribution but ensuring credibility of cheques and recovery of money. Accused may be extended benefit of Probation of Offenders Act, 1958 where facts so justify. [P. Mohanraj v. Shah Brothers Ispat, (2021) 6 SCC 258; Chellammal v. State, 2025 SCC OnLine SC 870, referred.] Relief Appeal allowed — High Court’s order dated 16.04.2009 set aside. Trial Court & Sessions Court convictions restored. Accused directed to pay ₹7,50,000 in 15 monthly instalments of ₹50,000 each. Directions/guidelines to be implemented by High Courts and District Courts not later than 01.11.2025.

Negotiable Instruments Act, 1881 — Ss. 118 & 139 — Presumptions — Scope & rebuttal

Once execution/signature of cheque admitted, statutory presumptions under Ss.118 and 139 arise that cheque was issued for consideration and in discharge of legally enforceable debt/liability. Presumption is rebuttable but burden initially lies on accused to set up probable defence. Mere denial or bald assertions without cogent material cannot rebut.

[Rangappa v. Mohan, (2010) 11 SCC 441; Bir Singh v. Mukesh Kumar, (2019) 4 SCC 197, relied on.]

---

Negotiable Instruments Act, 1881 — S.138 — Defence of financial incapacity of complainant

When accused challenges complainant’s financial capacity, burden shifts back to complainant only if accused produces credible material. Failure of accused to produce independent evidence (documents, witnesses, bank officials, ITO etc.) renders defence untenable. Failure to reply to statutory notice also leads to adverse inference against accused.

[Tedhi Singh v. Narayan Dass Mahant, (2022) 6 SCC 735; MMTC Ltd. v. Medchl Chemicals, (2002) 1 SCC 234, applied.]

---

Negotiable Instruments Act, 1881 — S.138 — Blank cheque defence

Defence that a blank cheque was given to complainant to enable him to obtain bank loan is inherently improbable, particularly where account lacked sufficient funds. Such assertion, absent evidence, is “unbelievable and absurd”.

---

Negotiable Instruments Act, 1881 — Ss.138, 142 — Pre-cognizance stage — Applicability of BNSS, 2023, S.223

In view of NI Act being a special enactment, there is no requirement of pre-cognizance summons under S.223 BNSS, 2023 in complaints under S.138 NI Act. Magistrate may directly take cognizance and issue process.

[Ashok v. Fayaz Ahmad, 2025 SCC OnLine Kar 490, approved.]

---

Negotiable Instruments Act, 1881 — S.138 — Cash loan above ₹20,000 — Effect of S.269SS, IT Act, 1961

Contravention of S.269SS IT Act (acceptance of loan/deposit above prescribed limit in cash) attracts only penalty under S.271D IT Act. Such breach does not render transaction illegal, void or unenforceable for S.138 purposes. Presumptions under Ss.118 & 139 NI Act remain attracted.

Ker HC view in P.C. Hari v. Shine Varghese, 2025 SCC OnLine Ker 5535, held incorrect & set aside.

---

Criminal Procedure — Revisional Jurisdiction — Scope

Revisional Court cannot re-appreciate evidence or disturb concurrent factual findings of Trial and Appellate Courts absent perversity or jurisdictional error.

[Southern Sales v. Sauermilch Design, (2008) 14 SCC 457; Bir Singh v. Mukesh Kumar, (2019) 4 SCC 197, referred.]

---

Negotiable Instruments Act, 1881 — Ss.138, 143, 147 — Massive pendency — Guidelines issued

In view of huge pendency of cheque dishonour cases (nearly 50% of Trial Court load in some metros), Supreme Court issues binding directions (effective 01.11.2025), inter alia:

• Service of summons: Not confined to usual modes; complainant to also serve dasti; service also via electronic means (email/WhatsApp etc.); affidavit of service mandatory. False affidavit — penal consequences.

• Online settlement: District Courts to create secure online QR/UPI facilities; summons to mention option of immediate payment by accused.

• Standardised complaint synopsis: Mandatory format covering party particulars, cheque details, dishonour, notice, cause of action, reliefs.

• Summary trial discipline: Trial Courts to record reasons before converting summary trial to summons trial; may ask structured questions u/s 251 CrPC / 274 BNSS at initial stage to clarify defence.

• Interim compensation: Courts encouraged to invoke S.143A NI Act early.

• Physical hearings post-service: To encourage settlement/compounding; exemptions from appearance sparingly.

• Evening courts: High Courts to fix realistic pecuniary limits (Delhi’s ₹25,000 ceiling held too low).

• Monitoring dashboards: District & Sessions Judges in Delhi, Mumbai, Calcutta to maintain live dashboards on pendency, disposal, settlement, adjournments. High Court committees to meet monthly, promote ADR, Lok Adalats, mediation.

---

Negotiable Instruments Act, 1881 — S.147 — Compounding — Modification of guidelines in Damodar S. Prabhu, (2010) 5 SCC 663

Revised graded scheme:
(a) If cheque amount paid before recording of defence evidence — compounding without costs.
(b) If cheque amount paid post defence evidence but before Trial Court judgment — compounding with 5% additional costs.
(c) If paid before Sessions Court/High Court in appeal/revision — 7.5% costs.
(d) If paid before Supreme Court — 10% costs.

---

Negotiable Instruments Act, 1881 — S.138 — Nature of offence

Proceedings under S.138 are quasi-criminal; essentially civil dispute clothed with criminal liability. Purpose is not retribution but ensuring credibility of cheques and recovery of money. Accused may be extended benefit of Probation of Offenders Act, 1958 where facts so justify.

[P. Mohanraj v. Shah Brothers Ispat, (2021) 6 SCC 258; Chellammal v. State, 2025 SCC OnLine SC 870, referred.]

---

Relief

Appeal allowed — High Court’s order dated 16.04.2009 set aside. Trial Court & Sessions Court convictions restored. Accused directed to pay ₹7,50,000 in 15 monthly instalments of ₹50,000 each. Directions/guidelines to be implemented by High Courts and District Courts not later than 01.11.2025.

2025 INSC 1158

Criminal Appeal No.1755/2010 Page 1 of 19

 REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 1755 OF 2010

SANJABIJ TARI .…. APPELLANT

VERSUS

KISHORE S. BORCAR & ANR. ..…RESPONDENTS

J U D G M E N T

MANMOHAN, J.

1. The present Appeal has been filed challenging the ex-parte judgment and

order dated 16th April 2009 passed by the High Court of Bombay at Goa

acquitting the Respondent No.1-Accused under Section 138 of the Negotiable

Instruments Act, 1881 (for short ‘NI Act’) and reversing the concurrent judgments

of the Trial Court and the Sessions Court.

ARGUMENTS ON BEHALF OF APPELLANT-COMPLAINANT

2. Mr. Amarjit Singh Bedi, learned counsel for the Appellant-Complainant

submitted that the High Court in exercise of its revisional jurisdiction erred in

upsetting the conviction of the Respondent No.1-Accused under Section 138 of

the NI Act based on categorical findings of facts rendered by both the Courts

below that the dishonoured cheque had been issued in favour of the AppellantComplainant in discharge of a legally enforceable debt.

3. He contended that there was no evidence on record to establish that the

Appellant-Complainant did not have the financial means to advance a friendly

loan of Rs.6,00,000/- (Rupees Six Lakhs) to the Respondent No.1-Accused . He

emphasised that the Appellant-Complainant in his statement under oath had stated 

Criminal Appeal No.1755/2010 Page 2 of 19

that in order to oblige his friend/Respondent No.1-Accused , the AppellantComplainant had arranged money from his father, who was a cloth merchant

having two shops and even went to the extent of parting with a portion of the loan

amount which he himself had borrowed from a financial institution.

4. He pointed out that the Respondent No.1-Accused during the course of

arguments on sentencing before the Trial Court had prayed for leniency on the

ground that he was ready to pay the cheque amount to the Appellant-Complainant

within a reasonable time.

5. He further stated that though the Appellant-Complainant filed an

application under Section 482 of the Code of Criminal Procedure (‘Cr.P.C.’) for

recall of the impugned judgment by substantiating sufficient cause for the absence

of his advocate on 16th April 2009, yet the learned Single Judge had been pleased

to dismiss the said application holding that the Court had become functus officio

and it had no jurisdiction under criminal law to recall the impugned order. He

submitted that the High Court erred in not exercising its inherent powers to set

aside the impugned judgment which, for all legal purposes, was an ex-parte order.

6. He lastly stated that if this Court were to set aside the impugned judgment

of the High Court and restore the concurrent judgments of the Trial Court and

Sessions Court, the Appellant-Complainant would accept the payment of

outstanding amount in instalments as directed by the Trial Court.

ARGUMENTS ON BEHALF OF RESPONDENT NO.1-ACCUSED

7. Per contra, Mr. Ankit Yadav, learned counsel for the Respondent No.1-

Accused stated that the Appellant-Complainant was being paid a salary of only

Rs.2,300/- (Rupees Two Thousand and Three Hundred) per month at the relevant

point of time, which was not even adequate to take care of his family, leave alone

sufficient to advance a loan of Rs.6,00,000/- (Rupees Six Lakhs). He contended

that the Appellant-Complainant was a highly indebted person who did not have

any source of income other than his meagre salary and therefore, he did not have 

Criminal Appeal No.1755/2010 Page 3 of 19

the wherewithal to advance such a huge loan and that too without issuance of any

kind of receipt.

8. He submitted that the accused can always rely on material and/or evidence

filed by the complainant in order to raise a probable defence which creates doubts

about the existence of a legally enforceable debt or liability. In support of his

submission, he relied upon the judgment of this Court in Rangappa vs. Sri

Mohan, (2010) 11 SCC 441.

9. He further submitted that whenever the accused questions the financial

capacity of the complainant in support of his probable defence, despite the

presumption of a legally enforceable debt under Section 139 of the NI Act, the

onus shifts back to the complainant to prove his financial capacity, more

particularly, when it is a case of giving loan by cash and thereafter issuance of a

cheque. In support of his submission, he relied upon the judgment of this Court

in APS Forex Services Private Limited vs. Shakti International Fashion

Linkers and Ors., (2020) 12 SCC 724.

10. He emphasised that the defence of the Respondent No.1-Accused that a

blank cheque had been given to the Appellant-Complainant to enable him to

obtain a loan from the bank was more than a probable defence to rebut the

presumption under the NI Act, particularly, in view of the fact that the parties

were known to each other.

REASONING

SCOPE AND INTENT OF CHAPTER XVII OF NI ACT

11. Having heard learned counsel for the parties, this Court is of the view that

it is essential to first outline the scope and intent of Chapter XVII (Sections 138

to 148) of NI Act which has been inserted by Act 66 of 1988 w.e.f. 1st April 1989.

12. The Statement of Objects and Reasons of Act 66 of 1988 states, “….to

enhance the acceptability of cheques in settlement of liabilities by making the

drawer liable for penalties in case of bouncing of cheques due to insufficiency of 

Criminal Appeal No.1755/2010 Page 4 of 19

funds in the accounts or for the reason that it exceeds the arrangements made by

the drawer, with adequate safeguards to prevent harassment of honest drawers.”

13. The provisions contained in Chapter XVII provide that where any cheque

drawn by a person for the discharge of any liability is returned by the bank unpaid

for the reason of the insufficiency of the amount of money standing to the credit

of the account on which the cheque was drawn or for the reason that it exceeds

the arrangements made by the drawer of the cheque with the banker for that

account, the drawer of such cheque shall be deemed to have committed an

offence. In that case, the drawer, without prejudice to the other provisions of the

said Act, shall be punishable with imprisonment for a term which may extend to

two years, or with fine which may extend to twice the amount of the cheque, or

with both.

14. Consequently, this Court is of the view that the intent behind introducing

Chapter XVII is to restore the credibility of cheques as a trustworthy substitute

for cash payment and to promote a culture of using cheques. Further, by

criminalizing the act of issuing cheques without sufficient funds or for other

specified reasons, the law promotes financial discipline, discourages

irresponsible practices and allows for a more efficient and timely resolution of

disputes compared to the previous pure civil remedy which was found to involve

the payee in a long-drawn out process of litigation.

ONCE EXECUTION OF CHEQUE IS ADMITTED, PRESUMPTIONS UNDER

SECTIONS 118 AND 139 OF THE NI ACT ARISE

15. In the present case, the cheque in question has admittedly been signed by

the Respondent No.1-Accused . This Court is of the view that once the execution

of the cheque is admitted, the presumption under Section 118 of the NI Act that

the cheque in question was drawn for consideration and the presumption under

Section 139 of the NI Act that the holder of the cheque received the said cheque

in discharge of a legally enforceable debt or liability arises against the accused. It

is pertinent to mention that observations to the contrary by a two Judges Bench 

Criminal Appeal No.1755/2010 Page 5 of 19

in Krishna Janardhan Bhat vs. Dattatraya G. Hegde, (2008) 4 SCC 54 have

been set aside by a three Judges Bench in Rangappa (supra).

16. This Court is further of the view that by creating this presumption, the law

reinforces the reliability of cheques as a mode of payment in commercial

transactions.

17. Needless to mention that the presumption contemplated under Section 139

of the NI Act, is a rebuttable presumption. However, the initial onus of proving

that the cheque is not in discharge of any debt or other liability is on the

accused/drawer of the cheque [See: Bir Singh vs. Mukesh Kumar, (2019) 4 SCC

197].

18. The judgment of this Court in APS Forex Services Private Limited (supra)

relied upon by learned counsel for the Respondent No.1-Accused only says that

presumption under Section 139 of the NI Act is rebuttable and when the same is

rebutted, the onus would shift back to the complainant to prove his financial

capacity, more particularly, when it is a case of giving loan by cash. This judgment

nowhere states, as was sought to be contended by learned counsel for the

Respondent No.1-Accused, that in cases of dishonour of cheques, in lieu of cash

loans, the presumption under Section 139 of the NI Act does not arise.

APPROACH OF SOME COURTS BELOW TO NOT GIVE EFFECT TO THE

PRESUMTIONS UNDER SECTIONS 118 AND 139 OF NI ACT IS CONTRARY

TO MANDATE OF PARLIAMENT

19. Recently, the Kerala High Court in P.C. Hari vs. Shine Varghese & Anr.,

2025 SCC OnLine Ker 5535 has taken the view that a debt created by a cash

transaction above Rs. 20,000/- (Rupees Twenty Thousand) in violation of the

provisions of Section 269SS of the Income Tax Act, 1961 (for short ‘IT Act,

1961’) is not a ‘legally enforceable debt’ unless there is a valid explanation for

the same, meaning thereby that the presumption under Section 139 of the Act will

not be attracted in cash transactions above Rs. 20,000/- (Rupees Twenty

Thousand). 

Criminal Appeal No.1755/2010 Page 6 of 19

20. However, this Court is of the view that any breach of Section 269SS of the

IT Act, 1961 is subject to a penalty only under Section 271D of the IT Act, 1961.

Further neither Section 269SS nor 271D of the IT Act, 1961 state that any

transaction in breach thereof will be illegal, invalid or statutorily void. Therefore,

any violation of Section 269SS would not render the transaction unenforceable

under Section 138 of the NI Act or rebut the presumptions under Sections 118

and 139 of the NI Act because such a person, assuming him/her to be the

payee/holder in due course, is liable to be visited by a penalty only as prescribed.

Consequently, the view that any transaction above Rs.20,000/- (Rupees Twenty

Thousand) is illegal and void and therefore does not fall within the definition of

‘legally enforceable debt’ cannot be countenanced. Accordingly, the conclusion

of law in P.C. Hari (supra) is set aside.

21. This Court also takes judicial notice of the fact that some District Courts

and some High Courts are not giving effect to the presumptions incorporated in

Sections 118 and 139 of NI Act and are treating the proceedings under the NI Act

as another civil recovery proceedings and are directing the complainant to prove

the antecedent debt or liability. This Court is of the view that such an approach

is not only prolonging the trial but is also contrary to the mandate of Parliament,

namely, that the drawer and the bank must honour the cheque, otherwise, trust in

cheques would be irreparably damaged.

NO DOCUMENTS AND/OR EVIDENCE LED WITH REGARD TO THE

FINANCIAL INCAPACITY OF THE APPELLANT

22. It is pertinent to mention that in the present case, the Respondent No.1-

Accused has filed no documents and/or examined any independent witness or

led any evidence with regard to the financial incapacity of the AppellantComplainant to advance the loans in question. For instance, this Court in

Rajaram S/o Sriramulu Naidu (Since Deceased) Through LRs. vs.

Maruthachalam (Since Deceased) Through LRs., (2023) 16 SCC 125 has held

that presumptions under Sections 118 and 139 of the NI Act can be rebutted by 

Criminal Appeal No.1755/2010 Page 7 of 19

the accused examining the Income Tax Officer and bank officials of the

complainant/drawee.

WHEN THE EVIDENCE OF PW-1 IS READ IN ITS ENTIRETY, IT CANNOT BE

SAID THAT THE APPELLANT-COMPLAINANT HAD NO WHEREWITHAL TO

ADVANCE LOAN

23. Most certainly, the accused can rely upon the evidence adduced by the

complainant to rebut the presumption with regard to the existence of a legally

enforceable debt or liability, yet in the present case, when the evidence of

Appellant-Complainant (PW-1) is read in its entirety, like it should be, it cannot

be said that the Appellant-Complainant had no wherewithal to advance any loan

to the Respondent No.1-Accused .

24. In fact, the Appellant-Complainant, in his statement, has stated that as the

Respondent No.1-Accused was his friend, he had advanced part of the loan

received by him and had also taken loan from his father to advance money to the

Respondent No.1-Accused .

25. The Trial Court in its order and judgment dated 30th April 2007 has held

that the Respondent No.1-Accused has failed to rebut the presumption under

Sections 118 and 139 of the NI Act and that the Appellant-Complainant has

proved the legally enforceable debt. The relevant portion of the Trial Court’s

order and judgment dated 30th April 2007 is reproduced hereinbelow:-

“11…Accused had not disputed his signature on the cheque.

Complainant stated that he had advanced to accused amount of

cheque in two different installments on two different occasions cannot

be believed has no merit. Accused himself admitted his signature on

the cheque and accused had failed to rebut the presumption in favour

of the complainant as available under Negotiable Instruments Act,

1881.

12.As regard the contention of the Ld. Advocate for the accused that

the complainant failed to show legally enforceable liability due to him

by the accused has also no merit as there is cogent evidence of the

complainant supported with documentary evidence as regard the 

Criminal Appeal No.1755/2010 Page 8 of 19

cheque and its dishonour and its non payment by the accused inspite

of the receipt of the notice to pay the same….”

26. The Sessions Court too specifically rejected the contention of the

Respondent No.1-Accused that the Appellant-Complainant had no means to

advance the loan of Rs.6,00,000/- (Rupees Six Lakhs) to the Respondent No.1-

Accused. The relevant portion of the Sessions Court’s judgment dated 17th

September 2008 is reproduced hereinbelow:-

“15…The contention of the accused, now in appeal, that the

complainant had no means to sustain himself and was in debt to

various institutions is not borne out from the records. No doubt, no

documentary evidence is produced by the complainant nor any

witness is there to prove that he gave Rs.6,00,000/- to the accused.

But the circumstances, discussed above are such that the testimony of

PW1 is sufficient to prove the said friendly loan transaction…”

IN REVISIONAL JURISDICTION, HIGH COURT DOES NOT, IN THE

ABSENCE OF PERVERSITY, UPSET CONCURRENT FACTUAL FINDINGS

27. It is well settled that in exercise of revisional jurisdiction, the High Court

does not, in the absence of perversity, upset concurrent factual findings [See: Bir

Singh (supra)]. This Court is of the view that it is not for the Revisional Court to

re-analyse and re-interpret the evidence on record. As held by this Court in

Southern Sales & Services and Others vs. Sauermilch Design and Handels

GMBH, (2008) 14 SCC 457, it is a well-established principle of law that the

Revisional Court will not interfere, even if a wrong order is passed by a Court

having jurisdiction, in the absence of a jurisdictional error.

28. Consequently, this Court is of the view that in the absence of perversity, it

was not open to the High Court in the present case, in revisional jurisdiction, to

upset the concurrent findings of the Trial Court and the Sessions Court.

FAILURE OF ACCUSED TO REPLY TO NOTICE LEADS TO AN INFERENCE

29. Furthermore, the fact that the accused has failed to reply to the statutory

notice under Section 138 of the NI Act leads to an inference that there is merit in 

Criminal Appeal No.1755/2010 Page 9 of 19

the Appellant-Complainant’s version. This Court in Tedhi Singh vs. Narayan

Dass Mahant, (2022) 6 SCC 735 has held that the accused has the initial burden

to set up the defence in his reply to the demand notice that the complainant did

not have the financial capacity to advance the loan. The relevant portion of the

said judgment is reproduced hereinbelow:-

“10. … The proceedings under Section 138 of the NI Act is not a civil

suit. At the time, when the complainant gives his evidence, unless a

case is set up in the reply notice to the statutory notice sent, that the

complainant did not have the wherewithal, it cannot be expected of

the complainant to initially lead evidence to show that he had the

financial capacity. To that extent, the courts in our view were right in

holding on those lines. However, the accused has the right to

demonstrate that the complainant in a particular case did not have

the capacity and therefore, the case of the accused is acceptable

which he can do by producing independent materials, namely, by

examining his witnesses and producing documents. It is also open to

him to establish the very same aspect by pointing to the materials

produced by the complainant himself. He can further, more

importantly, achieve this result through the cross-examination of the

witnesses of the complainant. Ultimately, it becomes the duty of the

courts to consider carefully and appreciate the totality of the evidence

and then come to a conclusion whether in the given case, the accused

has shown that the case of the complainant is in peril for the reason

that the accused has established a probable defence.”

 (emphasis supplied)

30. This Court in MMTC Ltd. and Another vs. Medchl Chemicals & Pharma

(P) Ltd. and Another, (2002) 1 SCC 234 has specifically held that when a

statutory notice is not replied, it has to be presumed that the cheque was issued

towards the discharge of liability.

31. Also, after receipt of the legal notice, wherein the Appellant-Complainant

alleged that the Respondent No.1-Accused’s cheque had bounced, no complaint

or legal proceeding was initiated by the Respondent No.1-Accused alleging that

the cheque was not to be encashed. Consequently, the defence of financial 

Criminal Appeal No.1755/2010 Page 10 of 19

incapacity of Appellant-Complainant advanced by the Respondent No.1-Accused

is an afterthought.

RESPONDENT NO.1-ACCUSED’S DEFENCE THAT A SIGNED BLANK

CHEQUE WAS ISSUED TO ENABLE COMPLAINANT TO OBTAIN A LOAN IS

UNBELIEVABLE

32. The High Court’s finding that the Respondent No.1-Accused ’s defence

that a signed blank cheque was issued by him so as to enable his friend/AppellantComplainant to obtain a loan from a bank was sufficient to rebut the presumptions

under Sections 118 and 139 of the NI Act is unbelievable and absurd. This Court

agrees with the Sessions Court’s finding in the present case that, “It is funny to

say that for obtaining loan from the bank, one can show a cheque which is issued

on an account in which there are not sufficient funds. The case of the accused is

unbelievable”.

KEEPING IN VIEW THE MASSIVE BACKLOG OF CHEQUE BOUNCING

CASES, THE FOLLOWING GUIDELINES ARE ISSUED

33. Before parting with this matter, this Court takes judicial notice of the fact

that despite repeated directions by this Court in various judgments including

Indian Bank Association and Others vs. Union of India and Others, (2014) 5

SCC 590, Damodar S. Prabhu vs. Sayed Babalal H., (2010) 5 SCC 663 and In

Re: Expeditious Trial of cases under Section 138 of NI Act 1881, (2021) 16 SCC

116, pendency of cheque bouncing cases under the NI Act in District Courts in

major metropolitan cities of India continues to be staggeringly high. For instance,

the pendency of Section 138 cases as on 01st September 2025 in Delhi District

Courts is 6,50,283 (Six Lakhs Fifty Thousand Two Hundred Eighty Three),

Mumbai District Courts is 1,17,190 (One Lakh Seventeen Thousand One

Hundred Ninety) and Calcutta District Courts is 2,65,985 (Two Lakhs Sixty Five

Thousand Nine Hundred Eighty Five) [Source: National Judicial Data Grid].

This pendency is putting an unprecedented strain on the judicial system as in

some States, cases under Section 138 of the NI Act constitute nearly fifty per cent 

Criminal Appeal No.1755/2010 Page 11 of 19

(50%) of the pendency in Trial Court (in Delhi Section 138 NI Act cases

constitute 49.45% of total Trial Court pendency).

34. In P. Mohanraj and Others v. Shah Brothers Ispat Private Limited, (2021)

6 SCC 258, this Court while re-iterating the position of law with regard to the

nature of offence under Section 138 of the NI Act, has held as under:

“53. A perusal of the judgment in Ishwarlal Bhagwandas [S.A.L.

Narayan Row v. Ishwarlal Bhagwandas, (1966) 1 SCR 190 : AIR 1965

SC 1818] would show that a civil proceeding is not necessarily a

proceeding which begins with the filing of a suit and culminates in

execution of a decree. It would include a revenue proceeding as well

as a writ petition filed under Article 226 of the Constitution, if the

reliefs therein are to enforce rights of a civil nature. Interestingly,

criminal proceedings are stated to be proceedings in which the larger

interest of the State is concerned. Given these tests, it is clear that a

Section 138 proceeding can be said to be a “civil sheep” in a

“criminal wolf's” clothing, as it is the interest of the victim that is

sought to be protected, the larger interest of the State being

subsumed in the victim alone moving a court in cheque bouncing

cases, as has been seen by us in the analysis made hereinabove of

Chapter XVII of the Negotiable Instruments Act.”

(emphasis supplied)

35. Admittedly, the offence under Section 138 of the NI Act is quasi-criminal

in character and is compoundable [See: Damodar S. Prabhu (supra)]. Recently,

in Gian Chand Garg v. Harpal Singh & Anr. (Criminal Appeal No. 3789 of

2025 dated 11th August 2025), a co-ordinate Bench of this Court has set aside

concurrent convictions rendered by the Courts below on the ground that the

proceeding under Section 138 of the NI Act is essentially a civil proceeding and

it is open to the parties to enter into a voluntary compromise. Consequently, this

Court is of the view that not only a voluntary compromise can bring the

proceedings under Section 138 NI Act to an end, but the accused under the said

offence are entitled to benefit under the Probation of Offenders Act, 1958 [See:

Chellammal & Another vs. State Represented by the Inspector of Police, 2025

SCC OnLine SC 870]. Observations to the contrary by Kerala HC in M.V. 

Criminal Appeal No.1755/2010 Page 12 of 19

Nalinakshan vs. M. Rameshan & Anr. 2009 All MR (Cri) Journal 273 are set

aside.

36. Keeping in view the massive backlog of cheque bouncing cases and the

fact that service of summons on the accused in a complaint filed under Section

138 of the NI Act continues to be one of the main reasons for the delay in disposal

of the complaints as well as the fact that punishment under the NI Act is not a

means of seeking retribution but is more a means to ensure payment of money

and to promote credibility of cheques as a trustworthy substitute for cash

payment, this Court issues the following directions:-

A. In all cases filed under Section 138 of the NI Act, service of

summons shall not be confined through prescribed usual modes but shall

also be issued dasti i.e. summons shall be served upon the accused by the

complainant in addition. This direction is necessary as a large number of

Section 138 cases under the NI Act are filed in the metropolitan cities by

financial institutions, by virtue of Section 142(2) of the NI Act, against

accused who may not be necessarily residing within the territorial

jurisdiction of the Court where the complaint has been filed. The Trial

Courts shall further resort to service of summons by electronic means in

terms of the applicable Notifications/Rules, if any, framed under subSections 1 and 2 of Section 64 and under Clause (i) of Section 530 and

other provisions of the Bhartiya Nagarik Suraksha Sanhita, 2023 (for short

‘BNSS, 2023’) like Delhi BNSS (Service of Summons and Warrants)

Rules, 2025. For this purpose, the complainant shall, at the time of filing

the complaint, provide the requisite particulars including e-mail address,

mobile number and/or WhatsApp number/messaging application details of

the accused, duly supported by an affidavit verifying that the said

particulars pertain to the accused/respondent.

Criminal Appeal No.1755/2010 Page 13 of 19

B. The complainant shall file an affidavit of service before the Court.

In the event such affidavit is found to be false, the Court shall be at liberty

to take appropriate action against the complainant in accordance with law.

C. In order to facilitate expeditious settlement of cases under Section

138 of the NI Act, the Principal District and Sessions Judge of each District

Court shall create and operationalise dedicated online payment facilities

through secure QR codes or UPI links. The summons shall expressly

mention that the Respondent/Accused has the option to make payment of

the cheque amount at the initial stage itself, directly through the said online

link. The complainant shall also be informed of such payment and upon

confirmation of receipt, appropriate orders regarding release of such money

and compounding/closure of proceedings under Section 147 of the NI Act

and/or Section 255 of Cr.P.C./278 BNSS, 2023 may be passed by the Court

in accordance with law. This measure shall promote settlement at the

threshold stage and/or ensure speedy disposal of cases.

D. Each and every complaint under Section 138 of the NI Act shall

contain a synopsis in the following format which shall be filed immediately

after the index (at the top of the file) i.e. prior to the formal complaint:-

Complaint under Section 138 of the Negotiable Instruments Act, 1881

I. Particulars of the Parties

(i) Complainant: ____________

(ii) Accused: ____________

(In case where the accused is a company or a firm then Registered

Address, Name of the Managing Director/Partner, Name of the

signatory, Name of the persons vicariously liable)

II. Cheque Details

(i) Cheque No. ____________

(ii) Date: ____________

(iii) Amount: ____________

Criminal Appeal No.1755/2010 Page 14 of 19

(iv) Drawn on Bank/Branch: ____________

(v) Account No.: ____________

III. Dishonour

(i) Date of Presentation: ____________

(ii) Date of Return/Dishonour Memo: ____________

(iii) Branch where cheque was dishonoured:_________

(iv) Reason for Dishonour: ____________

IV. Statutory Notice

(i) Date of Notice: ____________

(ii) Mode of Service: ____________

(iii) Date of Dispatch & Tracking No.: ____________

(iv) Proof of Delivery & date of delivery: ____________

(v) Whether served:____________________

(vi) If Not, reasons thereof:________________

(vii) Reply to the Legal Demand Notice, if any_______________

V. Cause of Action

(i) Date of accrual: ____________

(ii) Jurisdiction invoked under Section 142(2): ____________

(iii) Whether any other complaint under section 138 NI Act is pending

between the same parties, If Yes, in which court and the date and year

of the institution.

VI. Relief Sought

(i) Summoning of accused and trial under Section 138 NI

Act__________

(ii) Whether Award of Interim compensation under Section 143A of NI

Act sought _____

VII. Filed through:

Complainant/Authorized Representative”

E. Recently, the High Court of Karnataka in Ashok Vs. Fayaz Aahmad,

2025 SCC OnLine Kar 490 has taken the view that since NI Act is a special

enactment, there is no need for the Magistrate to issue summons to the

accused before taking cognizance (under Section 223 of BNSS) of

complaints filed under Section 138 of NI Act. This Court is in agreement 

Criminal Appeal No.1755/2010 Page 15 of 19

with the view taken by the High Court of Karnataka. Consequently, this

Court directs that there shall be no requirement to issue summons to the

accused in terms of Section 223 of BNSS i.e., at the pre-cognizance stage.

F. Since the object of Section 143 of the NI Act is quick disposal of the

complaints under Section 138 by following the procedure prescribed for

summary trial under the Code, this Court reiterates the direction of this

Court in In Re: Expeditious Trial of cases under Section 138 of NI Act

(supra) that the Trial Courts shall record cogent and sufficient reasons

before converting a summary trial to summons trial. To facilitate this

process, this Court clarifies that in view of the judgment of the Delhi High

Court in Rajesh Agarwal vs. State and Anr., 2010 SCC OnLine Del 2511,

the Trial Court shall be at liberty (at the initial post cognizance stage) to

ask questions, it deems appropriate, under Section 251 Cr.P.C. / Section

274 BNSS, 2023 including the following questions:-

(i) Do you admit that the cheque belongs to your account? Yes/No

(ii) Do you admit that the signature on the cheque is yours? Yes/No

(iii) Did you issue/deliver this cheque to the complainant? Yes/No

(iv) Do you admit that you owed liability to the complainant at the

time of issuance? Yes/No

(v) If you deny liability, state clearly the defence:

(a) Security cheque only;

(b)Loan repaid already;

(c) Cheque altered/misused;

(d)Other (specify).

(vi) Do you wish to compound the case at this stage? Yes/No

G. The Court shall record the responses to the questions in the ordersheet in the presence of the accused and his/her counsel and thereafter

determine whether the case is fit to be tried summarily under Chapter XXI

of the Cr.P.C. / Chapter XXII of the BNSS, 2023.

Criminal Appeal No.1755/2010 Page 16 of 19

H. Wherever, the Trial Court deems it appropriate, it shall use its power

to order payment of interim deposit as early as possible under Section 143A

of the NI Act.

I. Since physical courtrooms create a conducive environment for direct

and informal interactions encouraging early resolution, the High Courts

shall ensure that after service of summons, the matters are placed before

the physical Courts. Exemptions from personal appearances should be

granted only when facts so warrant. It is clarified that prior to the service

of summons the matters may be listed before the digital Courts.

J. Wherever cases under Section 138 of the NI Act are permitted to be

heard and disposed of by evening courts, the High Courts should ensure

that pecuniary limit of the cheque amount is realistic. For instance, in

Delhi, the jurisdiction of the evening courts to hear and decide cases of

cheque amount is not exceeding Rs.25,000/-. In the opinion of this Court,

the said limit is too low. The High Courts should forthwith issue practice

directions and set up realistic pecuniary benchmarks for evening Courts.

K. Each District and Sessions Judge in Delhi, Mumbai and Calcutta

shall maintain a dedicated dashboard reflecting the pendency and progress

of cases under Section 138 of the NI Act. The dashboard shall include, inter

alia, details regarding total pendency, monthly disposal rates, percentage of

cases settled/compounded, average number of adjournments per case and

the stage-wise breakup of pending matters. The District and Sessions

Judges in aforesaid jurisdictions shall conduct monthly reviews of the

functioning of Magistrates handling NI Act matters. A consolidated

quarterly report shall be forwarded to the High Court.

L. The Chief Justices of Delhi, Bombay and Calcutta are requested to

form Committee on the Administrative side to monitor pendency and to

ensure expeditious disposal of Section 138 of the NI Act cases. These

Committees should meet at least once a month and explore the option of 

Criminal Appeal No.1755/2010 Page 17 of 19

appointing experienced Magistrates to deal with Section 138 of the NI Act

cases as well as promoting mediation, holding of Lok Adalats and other

alternative dispute resolution mechanisms in Section 138 NI Act cases.

37. It is pertinent to mention that this Court framed guidelines for

compounding offences under the NI Act nearly fifteen years back in Damodar S.

Prabhu (supra). The relevant portion of the said Judgment is reproduced

hereinbelow:-

“THE GUIDELINES

(i) In the circumstances, it is proposed as follows:

(a) That directions can be given that the writ of summons

be suitably modified making it clear to the accused that he could

make an application for compounding of the offences at the first

or second hearing of the case and that if such an application is

made, compounding may be allowed by the court without

imposing any costs on the accused.

(b) If the accused does not make an application for

compounding as aforesaid, then if an application for

compounding is made before the Magistrate at a subsequent

stage, compounding can be allowed subject to the condition that

the accused will be required to pay 10% of the cheque amount to

be deposited as a condition for compounding with the Legal

Services Authority, or such authority as the court deems fit.

(c) Similarly, if the application for compounding is made

before the Sessions Court or a High Court in revision or appeal,

such compounding may be allowed on the condition that the

accused pays 15% of the cheque amount by way of costs.

(d) Finally, if the application for compounding is made

before the Supreme Court, the figure would increase to 20% of

the cheque amount.

 xxx xxx xxx

24. We are also conscious of the view that the judicial

endorsement of the abovequoted Guidelines could be seen as an

act of judicial law-making and therefore an intrusion into the

legislative domain. It must be kept in mind that Section 147 of the

Act does not carry any guidance on how to proceed with the

compounding of offences under the Act. We have already

explained that the scheme contemplated under Section 320 CrPC 

Criminal Appeal No.1755/2010 Page 18 of 19

cannot be followed in the strict sense. In view of the legislative

vacuum, we see no hurdle to the endorsement of some suggestions

which have been designed to discourage litigants from unduly

delaying the composition of the offence in cases involving Section

138 of the Act.

25. The graded scheme for imposing costs is a means to

encourage compounding at an early stage of litigation. In the

status quo, valuable time of the court is spent on the trial of these

cases and the parties are not liable to pay any court fee since the

proceedings are governed by the Code of Criminal Procedure,

even though the impact of the offence is largely confined to the

private parties. Even though the imposition of costs by the

competent court is a matter of discretion, the scale of costs has

been suggested in the interest of uniformity. The competent court

can of course reduce the costs with regard to the specific facts

and circumstances of a case, while recording reasons in writing

for such variance. Bona fide litigants should of course contest the

proceedings to their logical end.

26. Even in the past, this Court has used its power to do complete

justice under Article 142 of the Constitution to frame guidelines

in relation to the subject-matter where there was a legislative

vacuum.”

38. Since a very large number of cheque bouncing cases are still pending and

interest rates have fallen in the last few years, this Court is of the view that it is

time to ‘revisit and tweak the guidelines’. Accordingly, the aforesaid guidelines

of compounding are modified as under:-

(a) If the accused pays the cheque amount before recording of his

evidence (namely defence evidence), then the Trial Court may

allow compounding of the offence without imposing any cost or

penalty on the accused.

(b) If the accused makes the payment of the cheque amount post the

recording of his evidence but prior to the pronouncement of

judgment by the Trial Court, the Magistrate may allow

compounding of the offence on payment of additional 5% of the

cheque amount with the Legal Services Authority or such other

Authority as the Court deems fit.

Criminal Appeal No.1755/2010 Page 19 of 19

(c) Similarly, if the payment of cheque amount is made before the

Sessions Court or a High Court in Revision or Appeal, such

Court may compound the offence on the condition that the

accused pays 7.5% of the cheque amount by way of costs.

(d) Finally, if the cheque amount is tendered before this Court, the

figure would increase to 10% of the cheque amount.

39. This Court is of the view that if the Accused is willing to pay in accordance

with the aforesaid guidelines, the Court may suggest to the parties to go for

compounding. If for any reason, the financial institutions/complainant asks for

payment other than the cheque amount or settlement of entire loan or other

outstanding dues, then the Magistrate may suggest to the Accused to plead guilty

and exercise the power under Section 255(2) and/or 255(3) of the Cr.P.C. or 278

of the BNSS, 2023 and/or give the benefit under the Probation of Offenders Act,

1958 to the Accused.

CONCLUSION

40. Keeping in view the aforesaid findings, the appeal is allowed. The

impugned order passed by the High Court dated 16th April, 2009 is set aside and

the judgment as well as the orders of Trial Court and Sessions Court are restored

with a direction to the Respondent No.1-Accused to pay Rs.7,50,000/- (Rupees

Seven Lakhs Fifty Thousand) in 15 (fifteen) equated monthly instalment of

Rs.50,000/- (Rupees Fifty Thousand) each. The High Courts and District Courts

shall implement the aforesaid guidelines not later than 01st November, 2025.

……………….J.

[MANMOHAN]

.……………….J.

[N.V. ANJARIA]

New Delhi;

September 25, 2025