Orissa High Court: “Doctrine of In Pari Delicto Applies” – Court Quashes Proceedings U/s 138 NI Act Linked to Illegal Transaction
Isabella Mariam
The High Court of Orissa at Cuttack has quashed criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881, concerning dishonoured cheques issued to settle a liability arising from an illegal transaction. A Single Bench of Justice Sibo Sankar Mishra observed that the alleged debt was not legally enforceable, stating that “the cheques issued by the petitioner to discharge the immoral debt created by her son is not enforceable under law.” The Court, exercising its inherent jurisdiction under Section 482 of the Code of Criminal Procedure, concluded that continuing the proceedings would amount to an abuse of the court’s process, invoking the maxim in pari delicto potior est conditio defendentis.
The petitioner, Smt. Anupama Biswal, sought quashing of ICC Case No. 208 of 2021 under Section 138 of the N.I. Act initiated by the opposite party No.2, who is the complainant in the matter. The complainant alleged that the petitioner issued two cheques to settle a liability owed by the petitioner’s son. According to the complaint, the petitioner’s son had received cash from the complainant under an assurance that he would arrange a Government Medical College seat for the complainant’s son. The petitioner’s son failed to fulfil this assurance, and criminal proceedings for other offences were initiated against him, which remain pending trial.
When the petitioner’s son could not secure the promised admission, the complainant demanded a refund. To discharge this liability, the petitioner issued two cheques from her account in favour of the complainant. The cheques were dishonoured upon presentation. Following this, a statutory demand notice was issued to the petitioner, but the petitioner did not respond, leading to the initiation of ICC Case No. 208 of 2021.
The petitioner, through counsel, raised the contention that the alleged liability did not constitute a legally enforceable debt. The petitioner submitted that the transaction, which involved securing a medical seat through unlawful means, rendered the underlying debt illegal and unenforceable.
The petitioner relied on several judicial precedents, including the judgment of the Madras High Court in N.V.P Pandian v. M.M. Roy (AIR 1979 MAD 42). The petitioner’s counsel pointed to Paragraphs 5 and 11 of that decision, where it was recorded that “the public has an interest to see that in the selection of candidates for a seat in the Medical College the fittest persons should be selected” and “the law will not uphold an agreement whereby a person has agreed to use his influence or position for the purpose of securing a title, contract or some other benefit from the Government.” The Madras High Court had also noted that “the agreement was against public policy” and applied the doctrine of in pari delicto, preventing recovery of money involved in illegal arrangements.
The petitioner also cited the Delhi High Court’s decision in Virender Singh v. Laxmi Narain (MANU/DE/9709/2006), where the Court recorded that “in terms of the Supreme Court decisions... the parties being in pari delicto, the doctrine would apply and the sum... could not be recovered in a court of law.” In further support, the petitioner relied upon judgments from the Karnataka High Court in R. Parimala Bai v. Bhaskar Narasimhaiah (2018 SCC OnLine Kar 3989), the Bombay High Court in Nanda v. Nandkishor (2010 SCC OnLine Bom 54), and the Madras High Court in Jeyaramachandran v. Babu @ A.M. Iqbal (Crl.A.Nos 534 & 535 of 2013), where courts refused to enforce liabilities arising from transactions opposed to public policy.
The petitioner argued that since the cheques were issued to discharge a liability stemming from an illegal transaction entered into by her son, the proceedings under Section 138 were not maintainable.
Opposing this, the complainant, represented by counsel, contended that the question of whether the debt was legally enforceable could only be determined through a full trial. The complainant submitted that the case had been pending for over a year, and significant steps had been taken before the trial court. It was further contended that the petitioner was seeking to delay the proceedings and defeat the complainant’s legitimate claims.
The complainant also cited a judgment of the Jammu & Kashmir High Court in Fayaz Ahmad Sheikh v. Mushtaq Ahmad Khan (CRM(M) No.280/2021), arguing that prosecution under Section 420 of the IPC and Section 138 of the N.I. Act could proceed simultaneously since both offences are distinct.
Justice Sibo Sankar Mishra reviewed the submissions and began by referring to Section 138 of the N.I. Act, noting that “one of the ingredients to initiate a proceeding under Section 138 of the N.I. Act is essentially the cheques issued should be towards a debt or other liability, which is legally enforceable debt or the liability.”
The Court recorded that “on the basis of the undisputed facts germinating from the record, the petitioner could successfully establish that the cheques issued by her to the complainant is to clear the amount illegally accepted by his son for arranging a seat in the Medical College for the son of the complainant.”
The Court observed that “the son of the complainant has also participated in the illegal act” and concluded that “the cheques issued by the petitioner to discharge the immoral debt created by her son is not enforceable under law.”
Justice Mishra stated that “the doctrine of in pari delicto is clearly applicable in the present case. The Court should refuse to enforce illegal debt.” The Court further stated that “the complainant, being a party to the illegal transaction out of which the present dispute has arisen, cannot encash from her own guilt.”
Addressing the broader societal implications, Justice Mishra observed that “ambitious parents indulging in the illegal methods to secure admission of their wards to a good college at the cost of meritocracy and fairness in education, is indeed a crime” and “such actions not only deprive deserving candidates of their rightful opportunities but also foster an environment of dishonesty and corruption.”
The Court, however, also addressed the statutory presumption in Section 139 of the N.I. Act, recording that “once a cheque is admitted to have been signed and issued in favour of the holder, there is a statutory presumption operates to the effect that it is issued in discharge of a legally enforceable debt or liability.” The Court added that “this presumption being a rebuttable one, the issuer of the cheque is able to discharge the burden that it was issued for some other purpose.”
The Court referred to Rathish Babu Unnikrishnan v. The State (Govt. of NCT of Delhi) & Anr., Criminal Appeal Nos.694-695 of 2022, where the Supreme Court observed that “quashing proceedings at preliminary stages will result in finality without the parties having had an opportunity to adduce evidence.” However, Justice Mishra distinguished the present case, stating that “even if the petitioner is put to trial, in my considered view, the trial definitely would not result in securing conviction.”
The Court allowed the Criminal Miscellaneous Case and recorded that “the proceeding in ICC Case No.208 of 2021 U/s.138 of the N.I. Act pending in the court of the learned S.D.J.M., Bhadrak stands quashed qua the petitioner.” The Court granted liberty to the complainant to proceed against the petitioner if any other offence is made out, stating that “the Opposite Party No.2 is granted liberty to proceed against the petitioner in accordance with law, if any other offence is made out.”
Advocates Representing the Parties
For the Petitioner: Dipti Ranjan Mohapatra, Advocate
For Opposite Party No.1 (State): M.K. Mohanty, Additional Standing Counsel
For Opposite Party No.2: Lalit Sahu, Advocate
Case Title: Smt. Anupama Biswal v. State of Odisha & Another
Case Number: CRLMC No. 3881 of 2023
Bench: Justice Sibo Sankar Mishra
[Read/Download order]
