Safiya Malik

The Calcutta High Court has quashed the criminal proceedings initiated under Section 500 of the Indian Penal Code (IPC) against Kotak Mahindra Prime Ltd. The case, originally filed by the borrower alleging defamation due to the financial institution's actions concerning dishonoured cheques, was dismissed after the court determined that the prosecution lacked legal merit. The court recorded that the accused company had acted within its legal rights under the Negotiable Instruments Act (N.I. Act) and had filed its complaint before the appropriate legal authority.

The dispute originated from a financial transaction between Kotak Mahindra Prime Ltd. (the petitioner) and Pramod Singh (the complainant/opposite party). According to the petitioner, in November 2007, the complainant approached the company for a personal loan of Rs. 50,000/-. The loan was sanctioned, and an agreement dated November 24, 2007, was executed, stipulating repayment in 36 monthly instalments of Rs. 2,706/- each.

The petitioner contended that the complainant defaulted after paying only seven instalments—two through electronic clearing services (ECS) and five in cash. Despite multiple demands, the complainant failed to adhere to the repayment schedule. As per the terms of the agreement, the company attempted to recover the amount by presenting post-dated cheques issued by the complainant. However, the cheques were dishonoured due to insufficient funds. A demand notice was sent, but no payment was made within the required period.

In response, Kotak Mahindra Prime Ltd. filed proceedings under Section 138 of the N.I. Act before the Additional Chief Metropolitan Magistrate, Bangalore. The case was registered as Complaint Case No. 37105 of 2008. The Magistrate issued process against the complainant, who failed to appear, leading to the issuance of a warrant of arrest. The complainant was subsequently arrested and later released on bail.

The complainant then challenged the case in the Karnataka High Court under Criminal Petition No. 5489 of 2011. On February 1, 2012, the High Court directed the Magistrate to return the complaint to the petitioner for filing before the appropriate forum, as per Section 201(a) of the Code of Criminal Procedure (Cr.P.C.).

Following this, the complainant filed a fresh criminal proceeding under Section 500 IPC, alleging that the financial institution blackmailed him into depositing blank cheques and then misused them. He claimed that the company deliberately pursued proceedings in Bangalore, knowing that the court there lacked jurisdiction, with the intent to harass and humiliate him by ensuring his arrest.

In a supplementary affidavit, the complainant alleged a larger conspiracy, asserting that financial institutions, in collusion with legal practitioners and court staff, were issuing fraudulent judicial orders and warrants of arrest to force borrowers into making payments.

The court examined the complainant's allegations and the circumstances of the case. A key point of contention was whether the financial institution had knowingly filed the case in an incorrect jurisdiction. The court cited the eighth exception under Section 499 IPC, which states that making an accusation to a lawful authority in good faith does not constitute defamation.

The court observed: "It is not defamation to prefer in good faith an accusation against a person to anyone in lawful authority over that person with respect to the subject matter of the accusation." It was noted that for an action to be considered defamatory, it must lack good faith and reasonable belief. The Court also differentiates the conotation of the term 'good faith' in the context of Section 3(22) of the General Clauses Act 1897 and Section 52 of IPC. Para No-17 of the Judgment:-

"Though section 3(22) of General Clauses Act 1897, defines “good faith” stating that a thing shall be deemed to be done in good faith where it is infact done honestly, whether it is done negligently or not. But the expression “good faith” under IPC has a definite connotation which is different from saying that the person concerned has honestly believed the truth of what is said. In fact section 52 of IPC starts in the negative tone excluding all except what is allowed to be within its amplitude. Insistence sought to be achieved through the commencing words of the definition ‘nothing is said to be done or believed in good faith’ is that the solitary item included within the purview of the expression “good faith” is what is done with “due care and attention”.

The court examined the petitioner's actions in light of these principles and found that Kotak Mahindra Prime Ltd. had acted within its rights under Section 138 of the N.I. Act. It was recorded: "The petitioners who are relying on the eighth exception to Section 499 IPC need not establish the truth of the allegation but must show reasonable grounds for believing the accusation to be true."

Additionally, the court scrutinized the process followed by the Magistrate in the defamation case and found procedural lapses. It stated: "The Magistrate issued process under Section 204 Cr.P.C. mechanically, without applying his mind to the facts of the case and the applicable legal provisions." The judgment stated that a Magistrate must record satisfaction regarding the existence of a prima facie case before issuing process.

The court further examined the evidence, including payment records. While the complainant claimed that he had paid part of the loan amount and that a settlement had been reached, the court noted that there was insufficient documentary proof to establish that the complainant had fully complied with the terms of the alleged settlement agreement. The records showed that only Rs. 11,000/- had been paid in July 2008, with the remaining settlement amounts not verifiably recorded.

The court concluded that the defamation allegations were unsubstantiated and that the petitioner had acted in good faith while initiating proceedings under Section 138 of the N.I. Act. As a result, it ruled that the criminal complaint against Kotak Mahindra Prime Ltd. should be quashed.

The court held: "On the basis of overall discussion, the impugned proceeding is liable to be quashed." The criminal revision petition was allowed, and the proceedings in Case No. CR 523 of 2011 under Section 500 IPC, pending before the Judicial Magistrate, 5th Court, Serampore, Hooghly, were quashed.

The court directed those certified copies of the judgment be provided to the parties upon compliance with requisite formalities.

Case Title: Kotak Mahindra Prime Ltd. vs. Pramod Singh

Case Number: C.R.R. 2104 of 2012

Bench: Justice Dr. Ajoy Kumar Mukherjee

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