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Defense Is Illusory and Sham: Calcutta High Court Grants Summary Judgment in Cheque Dishonor Case

09 November 2024 8:04 PM

By: sayum


High Court rejects defendant’s claim of jurisdiction under the Commercial Courts Act, awards Rs. 7.23 crore with 12% interest per annum to plaintiff.

The Calcutta High Court has granted a summary judgment in favor of G.S. Fertilisers Pvt. Ltd., ordering AKJ Minerals Limited to pay Rs. 7,23,63,548/- along with interest. The judgment, delivered by Justice Krishna Rao, dismissed the defendant’s application for unconditional leave to defend the suit, citing the defense as “illusory and sham.”

G.S. Fertilisers Pvt. Ltd. Sought recovery of Rs. 7,23,63,548/- along with interest from AKJ Minerals Limited. The plaintiff advanced Rs. 4,05,00,000/- for the purchase of immovable properties, which the defendant acknowledged. The defendant later informed the plaintiff that the sale could not proceed and issued several cheques to refund the amount. However, all the cheques were dishonored due to insufficient funds. The plaintiff initiated proceedings under Section 138 of the Negotiable Instruments Act, 1881, and Section 420/406/120B of the IPC.

The court found the defendant’s claim that the cheques were issued as security to be unsubstantiated and dismissed it as an “illusory and sham defense.” Justice Rao noted, “The defendant’s assertion of issuing cheques for security is not supported by any substantial evidence. The defense is frivolous and does not raise any genuine triable issues.”

The defendant contested the suit’s maintainability, arguing that it fell under the Commercial Courts Act, 2015. The court rejected this contention, stating, “The defendant’s own admission of seeking financial accommodation from the plaintiff negates the claim of a commercial dispute.” The court emphasized that the financial transaction was not a commercial dispute but a financial accommodation sought by the defendant.

The judgment referenced key principles from the Supreme Court rulings in B.L. Kashyap and Sons Limited v. JMS Steels and Power Corporation and Another and Sudin Dilip Talaulikar v. Polycap Wires Private Limited and Others. Justice Rao remarked, “A defense that is merely illusory or sham does not warrant leave to defend. The defendant has failed to present a substantial defense or raise genuine triable issues.”

Justice Krishna Rao observed, “The defense set up by the defendant is practically moonshine, devoid of any substantive merit. The plaintiff is entitled to judgment as the defendant’s contentions do not constitute a bona fide defense.”

The High Court’s decision underscores the judiciary’s commitment to upholding the integrity of financial transactions and ensuring swift justice in cases of financial misconduct. By granting summary judgment, the court has set a precedent emphasizing the importance of credible defenses and the consequences of issuing dishonored cheques. The judgment is expected to have significant implications for similar cases, reinforcing the legal framework for addressing financial disputes.

Date of Decision: 13th June 2024

G.S. Fertilisers Pvt. Ltd. Vs. AKJ Minerals Limited

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