Cheques Issued For Land Deal Disputed Over Ownership: J&K&L High Court Upholds Unconditional Leave To Defend ₹1.35 Crore Suit
The Jammu & Kashmir and Ladakh High Court has held that where the very basis for issuance of cheques is disputed through cogent material, the question of whether they were issued in discharge of a legally enforceable debt or liability becomes a triable issue.
Justice Rajnesh Oswal made the observation while dismissing a petition filed by a man challenging an order granting unconditional leave to defend a summary suit seeking recovery of ₹1.35 crore. The Court held that the defendants had raised a substantial defence by disputing the petitioner's ownership of the land against which the cheques were allegedly issued, claiming that the property was State land.
The Court found no infirmity in the trial court's decision to allow the defendants to contest the suit, observing that their defence could not be characterised as doubtful or fanciful.
The Court was hearing a petition under Article 227 of the Constitution challenging an order passed by the 3rd Additional District Judge, Srinagar, granting unconditional leave to defend a suit instituted under Order XXXVII of the Code of Civil Procedure.
Background
The petitioner, claimed that he and other co-sharers had agreed to sell four kanals of land at Rawalpora, Srinagar, to the respondents for ₹4 crore. According to the petitioner, the respondents issued several cheques totalling ₹4 crore on May 14, 2022, towards the proposed transaction. After most of the cheques were dishonoured, the respondents allegedly requested him not to initiate legal proceedings and assured him that ₹1.35 crore would be paid within a few months. When the amount remained unpaid, he filed a summary suit for recovery.
The respondents sought leave to defend, contending that the cheques had not been issued towards the purchase of the land but as security under an arrangement whereby they were to help the petitioner and his brothers identify prospective purchasers. They claimed that the cheques were to be encashed only upon execution and registration of sale deeds.
The respondents further alleged that, upon approaching revenue officials for extracts relating to the property, they discovered that the land was State land classified as Shamilat Kahcharai and that the petitioner and his co-sharers had no subsisting right or interest in it. They also referred to proceedings concerning alleged fraudulent mutations of State land and the cancellation of such mutations by the Divisional Commissioner, Kashmir.
The trial court granted the respondents unconditional leave to defend. Challenging the order, the petitioner argued that the court had failed to give due effect to the statutory presumptions under Sections 118(a) and 139 of the Negotiable Instruments Act, 1881, despite the issuance and dishonour of the cheques.
Court's Observations:
Rejecting the petitioner's reliance on an agreement to sell dated March 2, 2022, Justice Oswal noted that the document referred to land bearing different survey numbers from those forming the basis of the cheque transaction. The Court also noted that the agreement had not been mentioned in the suit.
It accordingly rejected the contention that the agreement established the respondents' prior knowledge of the dispute concerning the land against which the cheques were issued.
On the statutory presumptions under the Negotiable Instruments Act, the Court observed that the suit was not founded solely on the cheques. The petitioner had himself relied on the alleged agreement for the sale of four kanals of land as the factual basis for claiming the amount.
The respondents, on the other hand, disputed the petitioner's ownership and asserted that the property was State land.
The Court observed,
“Once the foundational basis for the issuance of the cheques, as asserted by the petitioner, is challenged and disputed through cogent material, whether the cheques were issued in discharge of a legally enforceable debt or liability becomes a triable issue.”
The Court then referred to the Supreme Court's decision in B.L. Kashyap and Sons Ltd. v. M/s JMS Steels and Power Corporation, (2022) 3 SCC 294, which explained the principles governing leave to defend under Order XXXVII CPC.
The Supreme Court had held that grant of leave to defend, with or without conditions, is ordinarily the rule, while refusal is an exception. A defendant who raises genuine triable issues indicating a fair or reasonable defence would ordinarily be entitled to unconditional leave, unless there is a strong reason to deny it.
Applying these principles, Justice Oswal held that the respondents had raised a substantial defence that could not be characterised as doubtful or fanciful. Since genuine triable issues arose from their challenge to the petitioner's ownership and the nature of the land, they were entitled to unconditional leave to defend.
Finding no merit in the petition, the High Court dismissed it and upheld the trial court's order granting unconditional leave to defend the ₹1.35 crore recovery suit.