SARFAESI Act – Auction Sale – Sale to second-highest bidder – Legality of negotiated sale – Held illegal – The highest bidder failed to comply with auction conditions, and instead of conducting a fresh auction, the bank negotiated with the second-highest bidder – Held: Under Rule 9(3) of the Security Interest (Enforcement) Rules, 2002, the property should have been re-auctioned, and private negotiations were impermissible [Paras 5.4-5.5].

Natural Justice – Right of Guarantors – Challenge to Sale Certificate – Violation of procedural fairness – The petitioners were guarantors to a loan transaction and had their property auctioned due to default – The bank failed to notify them properly about the sale and the negotiated transaction – Held: Failure to provide due process under the SARFAESI Act and auction rules rendered the sale certificate invalid [Paras 5.6-5.7].

One Time Settlement – Rights of Borrowers and Guarantors – Higher Recovery to the Bank – Petitioners sought to retain the property by concluding an OTS for a higher sum than the auction price – Held: OTS arrangement secured a better recovery for the bank than the auction sale, justifying the petitioners' claim to retain their property subject to payment of the remaining amount with interest [Paras 5.8].

Equitable Relief – Courts should balance equities – Compensation to auction purchasers – The petitioners voluntarily agreed to compensate the auction purchasers with ₹1 crore as solatium for setting aside the sale certificate – Held: Such compensation balances the equities between parties while preserving procedural sanctity in auction sales under SARFAESI Act [Para 5.8].

Decision: The writ petition was allowed, quashing the impugned orders of the DRAT and DRT-II, Bangalore. The petitioners were directed to pay the remaining OTS amount within four weeks with 18% interest on the delayed payment. Further, ₹1 crore was to be paid to respondent auction purchasers within three weeks, failing which the petition would stand dismissed, and the DRAT order would be enforced.
 

Civil Law - Summary Suit – Unconditional Leave to Defend Required When Defence is Plausible – The High Court ruled that under Order 37 CPC, if the defendant raises a triable issue or plausible defence, unconditional leave must be granted – The trial court erred in holding the defence plausible but improbable while imposing a 50% bank guarantee requirement, contrary to Supreme Court precedent [Paras 9-10].

Legal Principles – Failure to Follow Supreme Court Guidelines on Leave to Defend – The trial court ignored the well-settled law laid down in Mechelec Engineers & Manufacturers v. Basic Equipment Corporation, (1976) 4 SCC 687, which categorically states that conditions of security can only be imposed if the defence is sham or illusory – The Court reiterated this principle, emphasizing that once a plausible defence is shown, the defendant must be granted unconditional leave [Paras 8-9].

Misapplication of Law – Conditional Leave with Bank Guarantee Held Invalid – The Court found that the trial court misapplied the law by requiring the defendant to furnish a 50% bank guarantee, despite accepting that the defence was plausible – Such a condition was arbitrary and legally unsustainable, leading to a failure of justice [Paras 10-11].

Supervisory Jurisdiction – Petition Treated Under Article 227 – Since the trial court’s order resulted in a miscarriage of justice, the Court exercised its supervisory jurisdiction under Article 227 of the Constitution to correct the error – The respondent’s preliminary objection on maintainability was rejected [Para 10].

Decision – Conditional Leave Set Aside – Defendant Granted Unconditional Leave to Defend – The High Court quashed the trial court’s condition requiring a bank guarantee and granted the defendant unconditional leave to defend the suit – Trial court directed to proceed further in accordance with law [Paras 11-12].
 

Criminal Law – Circumstantial Evidence – Standard of Proof – The case was based entirely on circumstantial evidence, requiring a complete chain of evidence pointing exclusively to the guilt of the accused – The Court held that the chain was incomplete, as there was a time gap of nearly 9-10 hours between the accused being last seen with the deceased and the discovery of the body – Held: Circumstantial evidence must exclude all other hypotheses except guilt, which was not established in this case [Paras 31, 36].

Extra-Judicial Confession – Reliability – Weak Evidence – The prosecution relied on extra-judicial confessions made to PW15, PW17, and PW18 – The Court reiterated that extra-judicial confessions are inherently weak evidence and must be corroborated – Held: Confession made to interested parties (father and uncle of the complainant) and not corroborated by independent evidence cannot be the sole basis for conviction [Paras 32-34].

Last Seen Theory – Substantial Time Gap – Guilt Not Established – The prosecution relied on PW12's testimony, who allegedly saw the accused and deceased together at 10 PM, while the body was discovered at 8 AM the next day – The Court held that the 9-10 hour gap left room for the possibility of another person committing the crime – Held: ‘Last seen’ evidence must be closely linked in time to the crime for it to be reliable [Paras 35-36].

Motive – Weak or Non-existent – Crucial in Circumstantial Cases – The prosecution alleged that the accused committed the murder due to taunts by the deceased calling him "Budha" and "Lichar" – The Court found this motive far-fetched and unconvincing, especially as the supporting testimony of PW19 (Sudesh) was recorded after a year and lacked credibility – Held: Absence of strong motive further weakens the prosecution case in circumstantial evidence cases [Paras 37-38].

Recovery of Incriminating Articles – Highly Doubtful – The prosecution claimed that the accused recovered a piece of rope used for strangulation and the victim's wallet – The Court found the recovery suspicious and unreliable, as:
(i) It was unlikely the accused would retain such incriminating items.
(ii) The knife allegedly used in the crime was found at the scene but not linked to the accused.
(iii) The key prosecution witness for recovery (PW11) was a close relative of the deceased.
(iv) The investigating officers had been subject to departmental inquiries for irregularities in the case.
Held: Recovery evidence failed to strengthen the prosecution's case [Paras 38-39].

Forensic & Medical Evidence – Gaps in Investigation – The forensic report confirmed the presence of a stupefying substance (Lidocaine) in the deceased’s body, supporting the theory that he was drugged – However, the complainant (PW17) did not undergo medical examination, no samples were taken, and no stupefying substance was recovered from the accused – Held: Failure to collect and corroborate forensic evidence further weakens the case [Paras 41].

Fingerprints and Other Crucial Evidence Not Presented – The police lifted fingerprints from the car, where the prosecution claimed the murder occurred, but the fingerprint report was not exhibited in court – The Court held this omission suspicious and detrimental to the prosecution case – Held: Failure to present crucial forensic evidence raises doubts about the fairness of the investigation [Paras 40].

Lie Detector Test – Accused’s Refusal Not Evidence Against Him – The accused refused to undergo a lie detector test, but the Court held that such a refusal cannot be treated as evidence of guilt, as it is a constitutional right under Article 20(3) of the Constitution – Held: Lie detector tests cannot be used as substantive evidence and are merely investigative tools [Paras 42].

Decision: Conviction Set Aside – Guilt Not Proved Beyond Reasonable Doubt – The Court found that the prosecution failed to establish a complete chain of circumstances, motive was weak, last seen theory was inconclusive, extra-judicial confessions were unreliable, and recoveries were doubtful – Held: Conviction and sentence set aside – Accused acquitted [Paras 43].
 

Property Law – Co-Sharer’s Rights – Mutation Does Not Confer Title – Held: Mutation No. 2116 Declared Illegal – Plaintiffs sought declaration of ownership and possession over 16 Kanals of land – Defendants claimed rights through Mutation No. 2116, which was based on a 1977 sale deed – Court held that mutation entries do not create or extinguish title and cannot grant ownership of specific Khasra Numbers without partition – Defendants had no valid claim [Paras 3-5, 13].

Co-Sharers – Alienation of Specific Khasra Numbers – Not Permissible Without Partition – Held: A co-sharer cannot alienate specific Khasra Numbers without partition – Sale by Ajaib Singh, a co-sharer, in 1977 did not grant exclusive rights to the defendants – Defendants' claim was contrary to settled law – Sale deed did not specify particular land parcels, and mutation based on such a sale is invalid [Paras 10-12].

Civil Procedure – Permanent Injunction – Protection of Possession of Co-Sharers – Held: Plaintiffs Entitled to Injunction – Defendants never took possession even after the 1977 sale deed – Trial Court found plaintiffs in settled possession – Admission by DW-1 Balbir Singh confirmed that defendants were never in possession – Court rightly restrained defendants from interfering with plaintiffs' possession [Paras 12, 13].

Decision – Second Appeal Dismissed – No Substantial Question of Law – Punjab and Haryana High Court held that the findings of the lower courts were correct and based on settled legal principles – No substantial question of law was involved – Appeal dismissed [Paras 12-13].

Land Acquisition – Urgency Clause – Justification for invocation – Compliance with conditions – The petitioners challenged the acquisition proceedings on the ground that urgency was invoked without justification and without fulfilling the requirement of paying 80% compensation before taking possession – Held: Invocation of urgency clause was justified as the project aimed at agrarian development – Further, a substantial part of the compensation was deposited, and the delay was due to pending ceiling proceedings, which were beyond the State’s control [Paras 5.2-5.5].

Land Acquisition – Lapse of Acquisition – Delay in issuing award – Effect of judicial stays – Petitioners argued that the acquisition lapsed under Section 11A of the Land Acquisition Act, 1894, due to excessive delay between notifications – Held: If the delay was caused by court-imposed stays, the statutory period excludes such periods – Since multiple legal proceedings delayed the acquisition, the lapse of proceedings could not be claimed by the petitioners [Para 5.6].

Doctrine of Acquiescence – Participation in Compensation Proceedings – Effect on Right to Challenge – Petitioners participated in compensation determination meetings and accepted a substantial portion of the compensation – Held: Having accepted compensation and engaged in price negotiations, the petitioners were estopped from challenging the acquisition later – A party cannot approbate and reprobate simultaneously [Para 5.7].

Public Purpose – Mega Market Project – Alleged Abandonment – Petitioners contended that the project was shifted elsewhere, rendering the acquisition invalid – Held: No judicial finding established that the project was abandoned – Observations in collateral proceedings did not amount to a final decision on project abandonment – Acquisition remained valid [Para 5.8].

Decision: The writ petitions were dismissed. The court upheld the validity of the acquisition and directed the authorities to pay the petitioners compensation at the agreed rates with 12% per annum interest from the date of the award. If payment was delayed, an additional 1% interest per month was to be paid, recoverable from the responsible officials.
 

Civil Writ - Reservation in Advocates’ Association Elections – No Legal Mandate – High Court Lacks Power Under Article 226 – Petitioners sought 50% reservation for SC/ST and backward communities in the Bengaluru Advocates Association elections, citing Article 14 – Supreme Court in Fozia Rahman v. Bar Council of Delhi and SCBA v. B.D. Kaushik had invoked Article 142 to mandate reservation for women, but such power is not available to the High Court – Held: In the absence of statutory provisions or constitutional mandate, the High Court cannot direct reservation in a private association – Decision: Petitions dismissed [Paras 16-18].

Equality Under Article 14 – Discrimination Between Women and SC/ST Advocates – No Justification for Selective Reservation – Petitioners contended that since the Supreme Court allowed reservation for women in the Bengaluru Advocates Association, the same principle should apply to SC/ST and backward classes – However, the Supreme Court’s orders were passed under Article 142, which the High Court cannot invoke – Held: No violation of Article 14, as reservation is not a constitutional right in private associations – Decision: No relief granted [Paras 8-9, 18-19].

Bengaluru Advocates Association – Public Function or Private Entity? – Not Subject to State Reservation Policy – Petitioners argued that the Advocates Association, receiving government funding, is subject to constitutional scrutiny – Court referred to BCCI v. Cricket Association of Bihar, holding that private entities performing public functions can be subject to writ jurisdiction – However, unlike BCCI, the Advocates Association is a private body with internal autonomy – Held: Association is not bound by government reservation policies – Decision: No interference by the Court [Paras 10-12].

Precedent in Karnataka High Court – Elections Conducted Without Reservation – No Basis for Judicial Intervention – In K.N. Subbareddy v. Advocates Association (ILR 2009 Kar 1697), directions were issued for election management but did not mandate reservation – Petitioners failed to show any legal basis for enforcing reservations – Held: High Court cannot create a right where none exists – Decision: Writs dismissed [Paras 12-13].

Decision: The High Court held that it lacked the power under Article 226 to mandate reservations in the Advocates Association, as such reservations were not provided for in the association’s by-laws or under any statutory provision. The Court reiterated that while the Supreme Court had used its extraordinary jurisdiction under Article 142 to allow reservation for women, the High Court could not exercise a similar power. The petitions were dismissed, leaving it open for the petitioners to approach the Supreme Court for appropriate relief.
 

Criminal Law – Quashing - Insecticides Act – Retail Sellers Not Liable for Manufacturer’s Defects – Proceedings Quashed – The petitioners, who were retail sellers, stocked insecticides manufactured by a third-party company – The prosecution failed to establish that the petitioners had knowledge of the substandard quality or control over the manufacturing process – Held: A retail seller with a valid license cannot be held vicariously liable for a manufacturer’s defects unless specific allegations of mens rea or complicity are made – Criminal proceedings quashed [Paras 6-8, 15-16].

Mens Rea – Essential for Criminal Liability – No Allegation Against Retailers – The doctrine of mens rea applies to offences under the Insecticides Act – Court held that prosecution must establish that the accused knowingly stocked a defective product or had control over its quality – Mere possession of substandard insecticides does not attract criminal liability in the absence of guilty intent – Held: Lack of allegations negates the basis for prosecution [Paras 14-15].

Section 33 of the Insecticides Act – Only Responsible Officers of a Company Can Be Prosecuted – Court clarified that only those individuals responsible for the conduct of a company’s business can be held liable – Retailers who merely stock and sell products cannot be implicated unless prosecution establishes active participation in the offence – Held: The petitioners do not fall within the scope of Section 33 and cannot be prosecuted [Paras 9-10].

Precedent from Supreme Court – Retailers Cannot Be Prosecuted Without Proof of Guilt – Proceedings Quashed – Relying on the Supreme Court’s judgment in M/s. Cheminova India Limited v. State of Punjab, Court reiterated that all and sundry cannot be prosecuted under the Insecticides Act – Held: Without allegations of complicity, criminal proceedings amount to an abuse of process of law and must be quashed [Para 13].

Final Decision – Criminal Proceedings Quashed – The High Court allowed the petition, quashing the criminal proceedings against the retail sellers – Held: Prosecution against the petitioners would be an abuse of process of law [Paras 15-16].

Taxation Law - Income Tax – Deduction under Section 37 – License Fee for Use of Goodwill – Valid Business Expenditure – The assessee, a law firm, claimed deductions for license fees paid to Remfry & Sagar Consultants Pvt. Ltd. (RSCPL) for the right to use the goodwill attached to the name "Remfry & Sagar" – The Assessing Officer (AO) disallowed the deduction, holding the transaction as a colorable device for diverting funds to non-lawyers – The ITAT allowed the deduction, holding that goodwill was a valid business asset – Held: Payments made for using goodwill and name recognition do not violate Explanation 1 to Section 37 – The transaction was commercially justified and unrelated to tax avoidance [Paras 1-10].

Goodwill in Legal Profession – Transfer Permissibility – Payment for Usage is Not Illegal – The court held that goodwill, including in the legal profession, is a transferable and monetizable asset – Dr. V. Sagar, the original owner, had lawfully gifted it to RSCPL, which then licensed it to the law firm – The Bar Council of India Rules prohibit sharing of legal fees but do not bar payment for goodwill usage – Held: The license fee was a valid expenditure, as it was for goodwill utilization and not a fee-sharing arrangement [Paras 26-33].

Income Tax – Section 37 Explanation 1 – Whether Bar Council Rules Prohibit Such Payments – Test of Purpose – Revenue argued that linking the license fee to 25% of the firm's revenue amounted to fee-sharing in violation of Bar Council Rules – The Supreme Court’s decision in Apex Laboratories v. DCIT was cited to argue that payments violating professional conduct rules are disallowable – Held: The purpose of expenditure determines its allowability under Explanation 1 to Section 37(1) – The primary purpose of the payment was to utilize goodwill, not share legal fees – Bar Council Rules were not violated, and the expenditure was not prohibited by law [Paras 15-36].

Income Tax – Revenue’s Attempt to Question Gift of Goodwill – Irrelevant to Deduction Dispute – Revenue sought to challenge the legitimacy of the gift deed transferring goodwill from Dr. V. Sagar to RSCPL – Court held that the validity of the gift was not in question; the sole issue was whether license fees paid for goodwill usage were allowable deductions – Held: Revenue's challenge to the gift was an unwarranted digression, and the payment for goodwill usage was a valid business expense [Paras 29-32].

Decision: The Delhi High Court dismissed the appeals. The court held that the license fee paid for goodwill usage is a valid business expenditure, as goodwill is a legitimate, transferable asset. It further ruled that the Bar Council of India Rules were not violated since the payments were not a revenue-sharing arrangement but a consideration for goodwill. Explanation 1 to Section 37 does not apply, as the expenditure was not for an illegal purpose or against public policy. The Revenue’s attempt to challenge the gift deed was irrelevant, as the only issue before the court was whether the license fees were deductible. Questions of law were answered in favor of the assessee and against the Revenue.

Criminal Law – Quashing – Loan Dispute - Criminal Proceedings – Civil Dispute – Proceedings Quashed – The petitioners challenged the issuance of process in a loan-related dispute where non-payment was alleged as cheating and criminal breach of trust – The Court observed that mere failure to repay a loan does not constitute a criminal offence unless fraudulent intent existed from the inception of the transaction – Held: The dispute is purely civil in nature and cannot be given a criminal color; proceedings quashed [Paras 13-18].

Cheating – Mens Rea – No Dishonest Intent at Inception – The complainant alleged that the petitioners took a loan and failed to repay in full, constituting cheating – The Court held that fraudulent or dishonest intention must exist at the beginning of the transaction to attract Section 420 IPC – Held: As petitioners had already repaid a substantial portion of the loan, no criminality was established; mere breach of contract does not amount to cheating [Paras 11-12].

Criminal Breach of Trust – Absence of Entrustment – Offence Not Made Out – The petitioners were accused of criminal breach of trust under Section 406 IPC – The Court ruled that entrustment of property is an essential ingredient of Section 405 IPC, which was absent in this case – Held: A simple loan transaction does not create a fiduciary relationship; Section 406 IPC not applicable [Paras 10-11].

Issue of Process – Magistrate’s Duty to Apply Judicial Mind – Summoning Order Quashed – The Magistrate issued process mechanically without recording satisfaction regarding the ingredients of the offences – The Court held that summoning an accused in a criminal case is a serious matter and must reflect due application of judicial mind – Held: The Magistrate failed to scrutinize the materials properly; summoning order set aside [Paras 14-16].

Abuse of Process – Criminalization of Civil Disputes – Proceedings Quashed – The Court observed that criminal law cannot be used as a tool to recover outstanding loan amounts, which should be pursued through civil remedies – Held: The complainant’s attempt to convert a civil dispute into a criminal case amounts to an abuse of process of law; entire proceedings quashed [Paras 17-18].